Washington, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

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ALNYLAM PHARMACEUTICALS, INC.

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ALNYLAM PHARMACEUTICALS, INC.
300 THIRD STREET
CAMBRIDGE, MASSACHUSETTS 02142

 

 

NOTICE OF 2008 ANNUAL MEETING OF STOCKHOLDERS

To Be Held On June 3, 2008

 

 

To our Stockholders:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Alnylam Pharmaceuticals, Inc. will be held on Tuesday, June 3, 2008 at 9:00 a.m., local time, at the offices of Alnylam Pharmaceuticals, Inc., 300 Third Street, Cambridge, Massachusetts. At the meeting, stockholders will consider and vote on the following matters:

 

 

The stockholders will also act on any other business that may properly come before the annual meeting or any adjournment thereof.

 

Stockholders of record at the close of business on April 11, 2008 are entitled to notice of, and to vote at, the annual meeting or any adjournment thereof. Your vote is important regardless of the number of shares you own.

 

We encourage all stockholders to attend the annual meeting in person.

 

Whether or not you plan to attend the annual meeting in person, we hope you will take the time to vote your shares. If you are a stockholder of record, you may vote on the Internet, by telephone or by completing and mailing the enclosed proxy card in the envelope provided. If your shares are held in “street name,” that is, held for your account by a broker or other nominee, you will receive instructions from the holder of record that you must follow for your shares to be voted. If you attend the annual meeting, your proxy will, upon your written request, be returned to you and you may vote your shares in person.

 

By Order of the Board of Directors

 

John M. Maraganore, Ph.D.
Chief Executive Officer

 

Cambridge, Massachusetts

April 25, 2008

TABLE OF CONTENTS

 

ALNYLAM PHARMACEUTICALS, INC.
300 THIRD STREET
CAMBRIDGE, MASSACHUSETTS 02142

 

 

PROXY STATEMENT

 

 

for the 2008 Annual Meeting of Stockholders

to be held on June 3, 2008

 

This proxy statement and the enclosed proxy card are being furnished in connection with the solicitation of proxies by the board of directors of Alnylam Pharmaceuticals, Inc. for use at the Annual Meeting of Stockholders to be held on Tuesday, June 3, 2008 at 9:00 a.m., local time, at the offices of Alnylam Pharmaceuticals, Inc., 300 Third Street, Cambridge, Massachusetts, and at any adjournment thereof.

 

All proxies will be voted in accordance with the instructions contained in those proxies. If no choice is specified, the proxies will be voted in favor of the matters set forth in the accompanying Notice of Meeting.

 

Our Annual Report to Stockholders and our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 are being mailed to stockholders with the mailing of these proxy materials on or about May 1, 2008.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on June 3, 2008:

 

This proxy statement and our 2007 Annual Report to Stockholders are available for viewing, printing and downloading at www.alnylam.com/2008AnnualMeeting.

 

A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as filed with the Securities and Exchange Commission, or SEC, will be furnished without charge to any stockholder upon written request to Alnylam Pharmaceuticals, Inc., 300 Third Street, Cambridge, Massachusetts 02142, Attention: Investor Relations and Corporate Communications. This proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 are also available on the SEC’s website at www.sec.gov.

 

 

Householding of Annual Meeting Materials

 

Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our proxy statement and annual report to stockholders may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of either document to you upon written or oral request to Alnylam Pharmaceuticals, Inc., 300 Third Street, Cambridge, Massachusetts 02142, Attention: Investor Relations and Corporate Communications, telephone: (617) 551-8200. If you want to receive separate copies of the proxy statement or annual report to stockholders in the future, or if you are receiving multiple copies and would like to receive only one copy per household, you should contact your bank, broker or other nominee record holder, or you may contact us at the above address and phone number.

 

The following table sets forth information regarding beneficial ownership of our common stock as of February 29, 2008 by:

 

 

The number of shares of common stock beneficially owned by each person or entity is determined in accordance with the applicable rules of the SEC and includes voting or investment power with respect to shares of our common stock. The information is not necessarily indicative of beneficial ownership for any other purpose. Unless otherwise indicated, to our knowledge, all persons named in the table have sole voting and investment power with respect to their shares of common stock, except to the extent authority is shared by spouses under community property laws. The inclusion herein of any shares as beneficially owned does not constitute an admission of beneficial ownership.

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, or the Exchange Act, as amended, requires our directors, executive officers and the holders of more than 10% of our common stock to file with the SEC initial reports of ownership of our common stock and other equity securities on a Form 3 and reports of changes in such ownership on a Form 4 or Form 5. Officers, directors and 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of our records and written representations by the persons required to file these reports, we believe that all filing requirements of Section 16(a) were satisfied with respect to our most recent fiscal year.

 

We have three classes of directors, currently consisting of three Class I directors, three Class II directors and three Class III directors. At each annual meeting, directors are elected for a term of three years to succeed those whose terms are expiring. The terms of the three classes are staggered so that only one class is elected by stockholders annually. John M. Maraganore, Ph.D., Paul R. Schimmel, Ph.D. and Phillip A. Sharp, Ph.D. are currently serving as Class I directors. Each of Drs. Maraganore, Schimmel and Sharp has served as a director since 2002. The Class I directors elected this year will serve as members of our board until the 2011 annual meeting of stockholders, or until their respective successors are elected and qualified.

 

The persons named in the enclosed proxy will vote to elect Drs. Maraganore, Schimmel and Sharp as Class I directors unless the proxy is marked otherwise. Drs. Maraganore, Schimmel and Sharp have indicated their willingness to serve on our board, if elected; however, if any nominee should be unable to serve, the person acting under the proxy may vote the proxy for a substitute nominee designated by our board. Our board has no reason to believe that Drs. Maraganore, Schimmel or Sharp would be unable to serve if elected.

 

Board Recommendation

 

The board of directors recommends a vote “FOR” the election of each of the Class I director nominees.

Set forth below for each director, including the Class I director nominees, Drs. Maraganore, Schimmel and Sharp, is information as of February 29, 2008 with respect to his or her (a) name and age, (b) positions and offices at Alnylam, (c) principal occupation and business experience during at least the past five years, (d) directorships, if any, of other publicly held companies and (e) the year such person became a member of our board of directors. The duration of an individual’s service on our board or as an officer described below includes service on the board of directors or as an officer of our predecessor company, which was also known as Alnylam Pharmaceuticals, Inc.

 

 

 

 

General

 

We believe that good corporate governance is important to ensure that Alnylam is managed for the long-term benefit of our stockholders. This section describes key corporate governance practices that we have adopted.

 

We have adopted a Code of Business Conduct and Ethics which applies to all of our officers, directors and employees, as well as charters for our audit committee, our compensation committee and our nominating and corporate governance committee. We have posted copies of the Code of Business Conduct and Ethics and each committee’s charter on the Corporate Governance section of our website, www.alnylam.com. We intend to disclose any amendments to, or waivers from, our Code of Business Conduct and Ethics on our website.

 

Corporate Governance Guidelines

 

Our board of directors has adopted corporate governance guidelines to assist in the exercise of its duties and responsibilities and to serve the best interests of Alnylam and our stockholders. These guidelines, which provide a framework for the conduct of our board of directors’ business, provide that:

 

 

 

Board Determination of Independence

 

Under The NASDAQ Stock Market Marketplace Rules, a director only will qualify as an “independent director” if, in the opinion of our board, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our board has determined that none of Drs. Dzau, Sato, Schimmel and Scolnick and Messrs. Clarke, Starr and Vincent has a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is an “independent director” as defined under NASDAQ Rule 4200(a)(15).

 

Role of the Board

 

Our board of directors has responsibility for establishing broad corporate policies and reviewing our overall performance rather than day-to-day operations. The primary responsibility of our board is to oversee the management of our company and, in doing so, serve the best interests of the company and our stockholders. Our board selects, evaluates and provides for the succession of executive officers and, subject to stockholder election, directors. It reviews and approves corporate objectives and strategies, and evaluates significant policies and proposed major commitments of corporate resources. Our board also participates in decisions that have a potential major economic impact on our company. Management keeps our directors informed of company activity through regular communication, including written reports and presentations at board of directors and committee meetings.

 

Board of Directors Meetings and Attendance

 

Our board met seven times during 2007, either in person or by teleconference. During 2007, each of our directors attended at least 75% of the aggregate number of board meetings and meetings of the committees on which he or she then served.

 

Directors are expected to attend the annual meeting of stockholders. All members of our board attended the 2007 annual meeting of stockholders.

 

Board Committees

 

Our board of directors has established three standing committees — audit, compensation and nominating and corporate governance — each of which operates under a written charter that has been approved by our board. We have posted copies of each committee’s charter on the Corporate Governance section of our website, www.alnylam.com. The members of each committee are appointed by our board, upon recommendation of our nominating and corporate governance committee.

 

Our board has determined that all of the members of each of its three standing committees are independent as defined under The NASDAQ Stock Market Marketplace rules, and, in the case of all members of our audit committee, the independence requirements of Rule 10A-3 under the Exchange Act.

 

Audit Committee

 

Our audit committee is responsible for:

 

 

 

In addition, our audit committee must approve or ratify any related party transaction entered into by us. Our policies and procedures for the review and approval of related person transactions are summarized below under the heading “Policies and Procedures For Related Person Transactions.”

 

The members of our audit committee are Messrs. Starr (Chair) and Clarke and Dr. Schimmel. We believe that each member of our audit committee satisfies the requirements for membership, including independence, established by The NASDAQ Stock Market and the SEC.

 

Our board determined that Mr. Starr is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.

 

No member of our audit committee is the beneficial owner of more than 10% of our common stock.

 

Our audit committee met five times during 2007.

 

Compensation Committee

 

Our compensation committee is responsible for:

 

 

The processes and procedures followed by our compensation committee in considering and determining executive and director compensation are described below under the heading “Compensation Discussion and Analysis.”

 

The members of our compensation committee are Dr. Sato (Chair) and Messrs. Starr and Vincent. We believe that each member of our compensation committee satisfies the requirements for membership, including independence, as established by The NASDAQ Stock Market.

Our compensation committee met eight times during 2007.

 

Nominating and Corporate Governance Committee

 

Our nominating and corporate governance committee is responsible for:

 

 

The processes and procedures followed by our nominating and corporate governance committee in identifying and evaluating director candidates are described below under the heading “Director Nomination Process.”

 

The members of our nominating and corporate governance committee are Mr. Clarke (Chair) and Dr. Dzau. We believe that each member of our nominating and corporate governance committee satisfies the requirements for membership, including independence, as established by The NASDAQ Stock Market.

 

Our nominating and corporate governance committee met three times during 2007.

 

Director Nomination Process

 

Our nominating and corporate governance committee is responsible for identifying individuals qualified to become directors, consistent with criteria approved by our board, and recommending the persons to be nominated for election as directors, except where we are legally required by contract, law or otherwise to provide third parties with the right to nominate.

 

The process followed by our nominating and corporate governance committee to identify and evaluate director candidates includes requests to board members and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the committee and our board.

 

In considering whether to recommend any particular candidate for inclusion in our board’s slate of recommended director nominees, our nominating and corporate governance committee will apply certain criteria, including the candidate’s integrity, business acumen, knowledge of our business and industry, experience, diligence, conflicts of interest and ability to act in the interests of all stockholders. The committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee. We believe that the backgrounds and qualifications of our directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow our board to fulfill its responsibilities.

 

Stockholders may recommend individuals to our nominating and corporate governance committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials and, if the stockholder is not a stockholder of record, a statement as to whether the stockholder or group of stockholders making the recommendation has beneficially owned more than 5% of our common stock for at least a year as of the date such recommendation is made, to the nominating and corporate governance committee, c/o Corporate Secretary, Alnylam Pharmaceuticals, Inc., 300 Third Street, Cambridge, Massachusetts 02142. Assuming that appropriate biographical and background material has been provided on a timely basis, the committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others. Stockholders also have the right under our bylaws to nominate director candidates directly, without any action or recommendation on the part of the committee or the board, by following the procedures set forth below under the heading “Stockholder Proposals.”

At the annual meeting, stockholders will be asked to consider the election of Drs. Maraganore, Schimmel and Sharp, all of whom currently serve on our board of directors. Drs. Maraganore, Schimmel and Sharp were proposed to our board by our nominating and corporate governance committee and our board determined to include them as its nominees.

 

Communicating with the Independent Directors

 

Our board of directors will give appropriate attention to written communications that are submitted by stockholders, and will respond if and as appropriate. The chair of our board (if an independent director), the lead director (if one is appointed), or otherwise the chair of our nominating and corporate governance committee, is primarily responsible for monitoring communications from stockholders and for providing copies or summaries to the other directors as he or she considers appropriate.

 

Communications are forwarded to all directors if they relate to important substantive matters and include suggestions or comments that the chair of our board (if an independent director), or the lead director (if one is appointed), or otherwise the chair of our nominating and corporate governance committee, considers to be important for the directors to know. In general, communications relating to corporate governance and long-term corporate strategy are more likely to be forwarded than communications relating to ordinary business affairs, personal grievances and matters as to which we tend to receive repetitive communications.

 

Stockholders who wish to send communications on any topic to our board should address such communications to the Board of Directors, c/o Corporate Secretary, Alnylam Pharmaceuticals, Inc., 300 Third Street, Cambridge, Massachusetts 02142.

 

Report of the Audit Committee

 

Our audit committee reports to and acts on behalf of our board by providing oversight of our financial management, related person transaction policies and procedures, audits of our financial statements and financial reporting controls and accounting policies and procedures. Our management is responsible for the preparation, presentation and integrity of our financial statements and the independent registered public accounting firm is responsible for conducting an independent audit of our annual financial statements. Our audit committee is responsible for independently overseeing the conduct of these activities by our management and our independent registered public accounting firm.

 

Our audit committee operates under a written charter adopted by our board that reflects standards contained in The NASDAQ Stock Market Marketplace Rules. Our audit committee reviews its charter annually. A complete copy of the current audit committee charter is posted on the Corporate Governance section of our website, www.alnylam.com.

 

Our audit committee has reviewed our audited financial statements for the fiscal year ended December 31, 2007, and has discussed them with our management and our independent registered public accounting firm, PricewaterhouseCoopers LLP. Our audit committee has also discussed with PricewaterhouseCoopers LLP the matters required to be discussed by the Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T, which requires the independent registered public accounting firm to provide the audit committee with additional information regarding the scope and results of the audit, including the independent registered public accounting firm’s responsibilities under generally accepted auditing standards, significant issues or disagreements concerning our accounting practices or financial statements, significant accounting policies, significant accounting adjustments, alternative accounting treatments, accounting for significant unusual transactions, and estimates, judgments and uncertainties.

 

In addition, PricewaterhouseCoopers LLP provided our audit committee with the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and our audit committee and PricewaterhouseCoopers LLP have discussed its independence from us and our management, including the matters in those written disclosures.

In this context, our audit committee members meet regularly with PricewaterhouseCoopers LLP and our management (including private sessions with each of PricewaterhouseCoopers LLP and members of management) to discuss any matters that our audit committee or these individuals believe should be discussed. Our audit committee conducts a meeting each quarter to review the financial statements prior to the public release of earnings.

 

Based on its discussions with management and PricewaterhouseCoopers LLP, and its review of the representations and information provided by management and PricewaterhouseCoopers LLP, our audit committee recommended to our board that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2007. Our audit committee also recommended to our board, and our board has approved, subject to stockholder ratification, the selection of PricewaterhouseCoopers LLP as our independent auditors for the fiscal year ending December 31, 2008.

 

By the audit committee of the board of directors of Alnylam,

 

Kevin P. Starr, Chair
John K. Clarke
Paul R. Schimmel, Ph.D.

 

Principal Accountant Fees and Services

 

The following table summarizes the fees of our independent auditors, PricewaterhouseCoopers LLP, an independent registered public accounting firm, billed to us for each of the last two fiscal years for audit and other services:

 

 

 

 

All such services were pre-approved by our audit committee in accordance with the pre-approval policies and procedures described below.

 

Pre-Approval Policies and Procedures

 

Our audit committee is required to pre-approve all audit services to be provided to us, whether provided by our principal independent auditors or other firms, and all other services to be provided to us by our independent auditors, except that de minimis non-audit services may be approved in accordance with applicable SEC rules.

 

Policies and Procedures For Related Person Transactions

 

Our board has adopted written policies and procedures for the review of any transaction, arrangement or relationship in which Alnylam is a participant, the amount involved exceeds $120,000, and one of our executive officers, directors, director nominees or 5% stockholders (or their immediate family members), each of whom we refer to as a “related person,” has a direct or indirect material interest.

 

If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a “related person transaction,” the related person must report the proposed related person transaction to our president and chief operating officer. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by our audit committee. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, our audit committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the chair of our audit committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by our audit committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually.

 

A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by our audit committee after full disclosure of the related person’s interest in the transaction. As appropriate for the circumstances, our audit committee will review and consider:

 

 

Our audit committee may approve or ratify the transaction only if the committee determines that, under all of the circumstances, the transaction is not inconsistent with our best interests. Our audit committee may impose any conditions on the related person transaction that it deems appropriate.

 

In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, our board has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:

 

 

The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by our compensation committee in the manner specified in its charter.

 

Agreements with Novartis

 

Beginning in September 2005, we entered into the first of two strategic alliances with Novartis Pharma AG and its affiliate, Novartis Institutes for Biomedical Research, Inc., whom we refer to collectively as Novartis. At that time, we and Novartis executed a stock purchase agreement and an investor rights agreement, and ultimately executed a research collaboration and license agreement. As of March 31, 2008, Novartis owned approximately 13.0% of our common stock and pursuant to the terms of the investor rights agreement, Novartis has the right until May 2, 2008 to purchase up to an additional 213,888 shares of our common stock at a purchase price of $25.29 per share, which, if purchased, would cause Novartis to own approximately 13.4% of our common stock.

 

In February 2006, we entered into the Novartis flu alliance. During 2007, we and Novartis agreed to focus on additional pre-clinical research prior to advancing this program into development.

 

Compensation Discussion and Analysis

 

Our compensation committee is responsible for overseeing the compensation of our senior management team, which includes our named executive officers and all of our vice presidents. In this capacity, our compensation committee designs, implements, reviews and approves all compensation for our chief executive officer and our other named executive officers. The goal of our compensation committee is to ensure that our compensation programs are aligned with our business goals and objectives and that the total compensation paid to each of our named executive officers is fair, reasonable and competitive.

 

Compensation Objectives and Philosophy

 

Our compensation programs are designed to attract and retain qualified and talented executives, motivating them to achieve our business goals and rewarding them for superior short- and long-term performance. In particular, our compensation programs are intended to reward the achievement of specified predetermined quantitative and qualitative goals and to align the interests of our senior management team with those of our stockholders in order to attain the ultimate objective of increasing stockholder value.

 

Elements of Total Compensation and Relationship to Performance

 

Key elements of our compensation programs include:

 

 

Both base salary compensation and equity incentive compensation are designed to reward annual achievements as measured against pre-determined quantitative and qualitative individual and corporate performance goals and objectives, with consideration given to the officer’s scope of responsibility, leadership abilities and effectiveness. We do not currently award cash bonuses to our named executive officers or other members of our senior management team.

 

Determining and Setting Executive Compensation

 

We develop our compensation programs by utilizing publicly available compensation data and subscription survey data for a peer group of national and regional companies in the biopharmaceutical and biotechnology industries, which we believe are generally comparable to Alnylam in terms of organizational

structure, size and stage of development, and against which we believe we compete for executive talent. This peer group of companies is reviewed and approved by our compensation committee annually. We believe that the compensation practices of this peer group provide us with appropriate compensation benchmarks. Notwithstanding the similarities of the peer group companies to Alnylam, due to the nature of our business, we compete for executive talent with many companies that are larger and better established than we are or that possess greater resources than we do, as well as with highly prestigious academic and non-profit institutions. Accordingly, our compensation committee generally targets base salaries between the 50th and 60th percentile of the range of salaries in our peer group and equity awards at or above the 75th percentile, resulting in total compensation for our executives between the 50th and 75th percentile of compensation paid to similarly situated executives of the companies in our peer group. Other considerations, including market factors and the experience level of an executive, may dictate variations to this general target.

 

As the biopharmaceutical industry is characterized by a very long product development cycle, including a lengthy research and development period and a rigorous approval phase involving human testing and governmental regulatory approval, many of the traditional benchmarking metrics, such as product sales, revenues and profits are inappropriate for an early-stage biopharmaceutical company, such as Alnylam. Instead, the specific factors our compensation committee considers when determining the compensation of our named executives include:

 

 

Our compensation committee has implemented an annual performance review program for our senior management team under which annual corporate and individual performance goals and objectives are determined and set forth in writing during the first quarter of each fiscal year. Our compensation committee then determines executive compensation after carefully reviewing overall corporate performance and performing a detailed evaluation of a named executive’s annual performance against established corporate goals and individual objectives. In addition, our compensation committee applies its judgment, as it deems appropriate, in determining executive compensation.

 

Annual corporate goals are proposed by our senior management team and approved by our board. Individual objectives focus on contributions that facilitate the achievement of the corporate goals and are proposed by each member of senior management. Our compensation committee approves the individual objectives for our chief executive officer, our president and chief operating officer and each of our vice presidents. Increases in base salary, annual stock option awards and awards under our stock option bonus plan, if any, are tied to the achievement of these corporate and individual performance goals and objectives. Our compensation committee also establishes the size of the award under our stock option bonus plan to be granted to each member of senior management in the event that all company and individual goals are met or exceeded, and the maximum award under our stock option bonus plan to be granted in the aggregate. During the last quarter of each fiscal year, our senior management team evaluates our corporate performance and each officer’s individual performance, as compared to the corporate and individual goals and objectives for that year. Based on this evaluation, our chief executive officer recommends to our compensation committee any increases in base salary, annual stock option awards and awards under our stock option bonus plan. Our chief executive officer’s individual performance evaluation is conducted by our compensation committee, which also determines whether to change his base salary, grant awards as part of our annual stock option grant to employees or grant awards under our stock option bonus plan. Stock option awards typically are granted at the last meeting of our board during the year. Any changes in base salary are effective at the beginning of the following year.

Defining and Comparing Compensation to Market Benchmarks

 

Our compensation committee’s goal is to determine an appropriate mix between cash payments and equity incentive awards to meet short- and long-term goals and objectives. With the exception of our annual stock option bonus plan, which we implemented in March 2007, we do not have any pre-established target for allocations or apportionment by type of compensation. The mix of compensation components is designed to reward recent results and drive long-term company performance.

 

We compare the total compensation of our senior management team to our industry peers. For 2007, our peer group consisted of biotechnology and biopharmaceutical companies in the 2007 Radford Global Life Sciences Survey, with a focus on companies with 50 to 149 employees. When evaluating the total compensation of our chief executive officer, we also considered a select group of companies included in the 2007 Radford Global Life Sciences Survey that were similar to Alnylam in terms of their number of employees, market capitalization, research and development expenditures and revenues. This select group included Cepheid, Human Genome Sciences, Inc., Infinity Pharmaceuticals, Inc., Isis Pharmaceuticals, Inc., Medarex, Inc., Momenta Pharmaceuticals, Inc., Myriad Genetics, Inc., Nastech Pharmaceutical Company, Inc., Regeneron Pharmaceuticals, Inc., Synta Pharmaceuticals Corp., XenoPort, Inc. and ZymoGenetics, Inc., among others. In addition, in 2007, we compared the total compensation of our president and chief operating officer to a separate select group of companies included in the 2007 Radford Global Life Sciences Survey with the position of chief operating officer. This select group included Alexion Pharmaceuticals Inc., Dyax Corp., Genomic Health, Inc., Maxygen, Inc., Neurogen Corporation, Rigel Pharmaceuticals, Inc., SuperGen, Inc. and XenoPort, Inc., among others. Our peer group is reviewed and approved by our compensation committee annually.

 

During 2007, our compensation committee engaged W.T. Haigh & Company, Inc. to assist in conducting a review of our executive compensation programs and, in particular, the compensation levels of our chief executive officer and our president and chief operating officer, as compared to those of our industry peers, and to interpret the results, make specific and overall recommendations and assist us in implementing any changes or additions to our compensation mix relative to those executive officers. Results of this analysis indicated that the cash compensation component for each of our chief executive officer and our president and chief operating officer was generally below comparative levels for similar positions within our peer group and equity-based compensation value and total compensation were positioned competitively. Our compensation committee reviewed the compensation of our vice president of finance and treasurer and our other officers against the compensation for similar positions of our industry peers.

 

Base Salary

 

We provide base salaries to our named executive officers to compensate them with a fair and competitive base level of compensation for services rendered during the year. Our compensation committee typically determines the base salary for each executive based on the executive’s responsibilities, experience and, if applicable, the base salary level of the executive at his or her prior employment. In addition, our compensation committee reviews and considers the level of base salary paid by companies in our peer group for similar positions. Generally, we believe that executive base salaries should be targeted between the 50th and 60th percentile of the range of salaries in our peer group.

 

Merit-based increases in base salary for all of our executives, other than our chief executive officer, are determined by our compensation committee based upon a written summary of the executive’s performance and a recommendation from our chief executive officer. A merit-based increase in base salary for our chief executive officer is based upon an assessment of his performance by our compensation committee, with input from the chairman of our board of directors and a review by our compensation committee of the base salary of chief executive officers in our peer group.

Equity Awards

 

Our equity awards program is designed to:

 

 

The market for qualified and talented executives in the biopharmaceutical industry is highly competitive and we compete for these personnel with many companies that have greater resources than we do. Accordingly, equity compensation is a crucial component of any competitive executive compensation package we may offer.

 

Our equity awards have taken the form of stock options. We typically grant stock options to each of our executive officers upon commencement of employment and annually in conjunction with our review of individual performance. We also grant stock options to our executive officers under our stock option bonus plan. All stock option grants to our executive officers are approved by our compensation committee and, other than grants to new hires, are typically granted at our compensation committee’s regularly scheduled meeting at the end of the fiscal year. All stock options granted to our executives have exercise prices equal to the fair market value of our common stock on the date of grant, so that the recipient will not earn any compensation from his or her options unless our share price increases above the exercise price. In addition, the stock options granted typically vest over four years, which we believe provides an incentive to our executives to add value to the company over the long term and to remain with Alnylam.

 

Stock option grant levels vary among executive officers based on their positions and annual performance assessment, and, in the case of our chief executive officer and our president and chief operating officer, are determined partly based on peer group market data. In addition, our compensation committee reviews all components of the executive’s compensation to ensure that an executive’s total compensation conforms to our overall philosophy and objectives.

 

Typically, the stock options we grant to our executives have a ten-year term and vest as to 25% of the shares on the first anniversary of the grant date and as to an additional 6.25% of the shares at the end of each successive three-month period following the first anniversary of the grant date until the fourth anniversary of the grant date. Vesting ceases upon termination of employment and exercise rights cease three months following termination of employment, except in the case of death or disability. Prior to the exercise of an option, the holder does not have any rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents.

 

The number of stock options granted to our named executive officers, and the value of those grants determined in accordance with SFAS 123R, are shown below in the 2007 Grants of Plan-Based Awards Table on page 26.

 

We do not have any equity ownership guidelines for our executives.

 

Stock Option Bonus Plan

 

In March 2007, our compensation committee authorized the implementation of an executive stock option bonus plan for 2007, pursuant to which each of our vice presidents and executive officers was eligible to receive an annual bonus in the form of an award of stock options based upon the achievement of individual and corporate goals and objectives for 2007 that were approved by our compensation committee. The corporate goals for 2007 focused on advancing our RSV program into Phase II studies; advancing development programs to investigational new drug stage with the Food and Drug Administration; continuing to advance our delivery capabilities; funding the business with existing and new alliances; and building and

developing the organization. In addition, under the 2007 executive stock option bonus plan, each participant was eligible to receive an additional award of stock options for individual performance as measured against his or her annual individual performance objectives. In December 2007, under this plan, our compensation committee reviewed individual and corporate performance, measured such performance against the goals and objectives, and awarded options to our senior management team to purchase an aggregate of 101,073 shares of our common stock, of which options to purchase an aggregate 47,245 shares were awarded to our named executive officers, at an exercise price equal to the fair market value of our common stock on the date of grant. Such stock options will vest in accordance with our typical four-year vesting schedule.

 

In March 2008, our compensation committee authorized the implementation of a similar executive stock option bonus plan for 2008, pursuant to which each of our vice presidents and executive officers is eligible to receive an annual bonus in the form of an award of stock options based upon the achievement of individual and corporate goals and objectives for 2008 that were approved by our compensation committee. The corporate goals for 2008 focus on: advancing our RSV program into Phase II studies in naturally infected patients; advancing development programs to investigational new drug stage with the Food and Drug Administration; continuing to advance our delivery capabilities; funding the business with existing and new strategic alliances, including ending the year with a specified minimum cash balance; and building and developing the organization in accordance with our investment plan. In addition, under the 2008 executive stock option incentive plan, each participant is eligible to receive an additional award of stock options for individual performance as measured against his or her annual individual performance objectives. Under this plan, the maximum stock option award for each executive officer is as follows: 40,000 shares for our chief executive officer, 25,000 shares for our president and chief operating officer, and 12,500 shares for our vice president of finance and treasurer.

 

Benefits and Other Compensation

 

Other compensation to our executives consists primarily of the broad-based benefits we provide to all employees, including health and dental insurance, life and disability insurance, an employee stock purchase plan and a 401(k) plan, except that executive officers are not eligible to participate in our employee stock purchase plan. Our 401(k) plan is a tax-qualified retirement savings plan pursuant to which all U.S. based employees, including executive officers, are able to contribute the lesser of up to 60% of their annual salary or the limit prescribed by the Internal Revenue Service on a before-tax basis. We match, in the form of shares of our common stock, 50% of the first 6% of a plan participant’s pay that is contributed to the plan. Our contribution is made at the end of each quarter up to an annual maximum number of shares with a value of $5,250 for each participant. Our matching contributions become fully vested after the employee has been employed by us for two years.

 

Compensation for Our Named Executive Officers in 2007

 

Chief Executive Officer Compensation

 

In determining the 2007 compensation for our chief executive officer, John M. Maraganore, Ph.D., our compensation committee reviewed the performance of the company during 2007 and Dr. Maraganore’s performance as compared to his individual corporate, financial, strategic and operational objectives for the year. In particular, in making its determination for the bonus award, our compensation committee determined that Dr. Maraganore successfully achieved most of his goals and objectives, including advancing our RSV program into Phase II studies; continuing to work on major delivery breakthroughs; funding the business with existing and new alliances; building and developing the organization; and leading our external interface with investors, academic and industry leaders. As a result of our compensation committee’s review of the company’s performance and of Dr. Maraganore’s performance against his objectives, our compensation committee determined that Dr. Maraganore achieved 80% of the 2007 corporate and individual goals and objectives. Based on this determination, the results of the review conducted with W.T. Haigh & Company indicating that Dr. Maraganore’s cash compensation was generally well below the target percentile as compared to our peer group and the desire of our compensation committee to provide a competitive base salary for our chief executive officer between the 50th and 60th percentiles of our peer group, our

compensation committee approved a 22% increase in Dr. Maraganore’s annual base salary from $431,600 in 2007 to $525,000 in 2008. Dr. Maraganore’s increased base salary is in the 58th percentile of the peer group described above. In addition, as a result of our compensation committee’s determination regarding the company’s and Dr. Maraganore’s performance and its desire to provide an annual equity award above the 75th percentile of industry survey data, Dr. Maraganore received an annual option award to purchase 125,000 shares of common stock, and was awarded additional stock options to purchase 25,600 shares of common stock, which represented 80% of Dr. Maraganore’s target grant under the executive stock option bonus plan for 2007.

 

Compensation of Other Named Executive Officers

 

In determining the 2007 compensation for our president and chief operating officer, Barry E. Greene, and our vice president of finance and treasurer, Patricia L. Allen, our compensation committee reviewed the performance of the company during 2007 and their individual performances as compared to their individual corporate, financial, strategic and operational objectives for the year.

 

The individual objectives for Mr. Greene involved meeting specified targets in the following areas: business development achievements; external alliance management and funding; pipeline development; organizational growth; operating performance; strategic planning; and external communications. Our compensation committee also considered Dr. Maraganore’s recommendations with respect to Mr. Greene’s performance. For the bonus award, our compensation committee determined that Mr. Greene successfully achieved several key objectives for the year, including: providing leadership, planning and executing key alliance management initiatives; driving business development accomplishments; achieving key pipeline objectives specific to our RSV program; building and developing the organization for long-term growth; and driving effective communication externally. In 2007, Mr. Greene was promoted to the additional office of president in recognition of his broader leadership responsibilities in business and product development. As a result of our compensation committee’s review of the company’s performance and of Mr. Greene’s performance against his objectives, our compensation committee determined that Mr. Greene achieved 80% of the 2007 corporate and individual goals and objectives. Based on this determination, Mr. Greene’s promotion to president and chief operating officer, the results of the review conducted with W.T. Haigh & Company indicating that Mr. Greene’s cash compensation was generally below the target percentile as compared to our peer group and the desire of our compensation committee to provide a competitive base salary between the 50th and 60th percentiles of the peer group described above with respect to Mr. Greene, our compensation committee approved a 13% increase in Mr. Greene’s annual base salary from $309,000 in 2007 to $350,000 in 2008. Mr. Greene’s increased base salary is slightly above the 60th percentile of our peer group. In addition, as a result of our compensation committee’s determination regarding the company’s performance and Mr. Greene’s performance against his objectives and its desire to provide an annual equity award above the 75th percentile of industry survey data, Mr. Greene received an annual option award to purchase 65,980 shares of common stock, and was awarded additional stock options to purchase 14,020 shares of common stock, which represented 80% of Mr. Greene’s target grant under the executive stock option bonus plan for 2007.

 

The individual objectives for Ms. Allen involved meeting specified targets in the following areas: financial leadership in support of our company goals; long-range planning; external guidance; and overall financial management, including meeting specified minimum cash balance requirements at year-end. Our compensation committee also considered both Dr. Maraganore’s and Mr. Greene’s recommendations with respect to Ms. Allen’s performance. For the bonus award, our compensation committee determined that Ms. Allen successfully achieved several key objectives for the year, including: meeting our goals for the year-end cash; providing financial leadership in support of our business development goals and assisting in securing funding for our business with new alliances; successfully completing long-term financing and investment planning objectives; and developing financial systems to support our research and development efforts. As a result of our compensation committee’s review of the company’s performance and of Ms. Allen’s performance against her objectives, our compensation committee determined that Ms. Allen achieved 76% of the 2007 corporate and individual goals and objectives. Based on this determination and the desire of our compensation committee to provide a competitive base salary between the 50th and 60th percentiles of our

peer group, our compensation committee approved a 5% increase in Ms. Allen’s annual base salary from $217,069 in 2007 to $227,830 in 2008. Ms. Allen’s increased base salary is slightly above the 60th percentile of our peer group. In addition, as a result of our compensation committee’s determination regarding the company’s performance and Ms. Allen’s performance against her objectives, Ms. Allen received an annual option award to purchase 25,000 shares of common stock, and was awarded additional stock options to purchase 7,625 shares of common stock, which represented approximately 76% of Ms. Allen’s target grant under the executive stock option bonus plan for 2007.

 

Compensation for Our Named Executive Officers in 2008

 

In determining the 2008 compensation for our named executive officers, our compensation committee will review the performance of the company during 2008 and the individual performance of each individual named executive officer as compared to such named executive officer’s individual corporate, financial, strategic and operational objectives for the year. In particular, in making its determination, our compensation committee will consider our success against the following corporate goals: advancing our RSV program into Phase II studies in naturally infected patients; advancing one development program to investigational new drug stage with the Food and Drug Administration; continuing to advance our deliver capabilities; funding the business with existing and new alliances, including ending the year with a specified minimum cash balance; and building and developing the organization in accordance with our plan. In addition, under the 2008 executive stock option bonus plan, each participant is eligible to receive an additional award of stock options for individual performance as measured against his or her annual individual performance objectives. Dr. Maraganore’s individual objectives are heavily weighted toward achieving corporate goals, but also include specific targets with respect to executive recruitment, business development initiatives and managing external communications. Mr. Greene’s objectives are also heavily weighted toward achieving corporate goals, but also include specific targets with respect to managing our various strategic alliances, advancing our intellectual property position, and managing our financial position. Ms. Allen’s objectives focus on meeting specified financial goals, managing our financial position, providing support to our business development team and building a long-term financial plan.

 

Compliance with IRS Code Section 162(m)

 

Section 162(m) of the Internal Revenue Code of 1986, as amended, generally disallows a tax deduction to public companies for compensation in excess of $1.0 million paid to a company’s chief executive officer and its other officers whose compensation is required to be disclosed to stockholders pursuant to the Exchange Act by reason of being among the Company’s four other most highly compensated officers. Qualified performance-based compensation is not subject to the deduction limitation if specified requirements are met. We periodically review the potential effects of Section 162(m) and we consider whether to structure the performance-based portion of our executive compensation, to comply with exemptions in Section 162(m) so that the compensation remains tax deductible to us. However, our compensation committee may, in its judgment, authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate to attract and retain executive talent and are in our best interest and that of our stockholders.

 

Stock Option Granting Practices

 

Delegation to Our Chief Executive Officer

 

Currently, all of our regular employees, including our named executive officers, are eligible to participate in our 2004 Stock Incentive Plan. All new employees are granted stock options when they start employment and all continuing employees are eligible for stock option grants on an annual basis based on performance and upon promotions to positions of greater responsibility. Our compensation committee has delegated to Dr. Maraganore, our chief executive officer, the authority to make stock option grants under our 2004 Stock Incentive Plan to new hires, other than vice presidents and executive officers. The number of stock options he may grant to any one individual must be within the range specifically set by our board for these grants. The

exercise price of such stock options must be equal to the closing price of our common stock on The NASDAQ Global Market on the date of grant.

 

With respect to stock option grants to new hires other than vice presidents, Dr. Maraganore approves the grant prior to the employee’s first date of employment with such approval and provides that the award is to be granted to the new hire on his or her first date of regular employment, with a price equal to the closing price of the common stock as reported on The NASDAQ Global Market on the first date of regular employment. Dr. Maraganore is required to maintain a list of options granted pursuant to such delegated authority and report to our compensation committee regarding such grants.

 

Report of the Compensation Committee on Executive Compensation

 

Our compensation committee has reviewed and discussed the “Compensation Discussion and Analysis” required by Item 402(b) of Regulation S-K with management. Based upon such review and discussions, our compensation committee recommended to our board that such section be included in this proxy statement and incorporated by reference in our Annual Report on Form 10-K for the year ended December 31, 2007, which was filed with the SEC on March 10, 2008.

 

By the compensation committee of the board of directors of Alnylam,

 

Vicki L. Sato, Ph.D., Chair

Kevin P. Starr

James L. Vincent

Executive Compensation

 

The following table sets forth the total compensation paid or accrued for the years ended December 31, 2007 and 2006 to our named executive officers.

 

Summary Compensation Table

 

 

 

 

 

 

 

 

 

The following table sets forth information concerning each grant of an award made to a named executive officer during the fiscal year ended December 31, 2007 under any plan, contract, authorization or arrangement pursuant to which cash, securities, similar instruments or other property may be received:

 

2007 Grants of Plan-Based Awards

 

 

 

 

 

The amounts reported in the Summary Compensation Table for these option awards reflect our accounting expense and may not represent the amounts our named executive officers will actually realize from the awards. Whether, and to what extent, a named executive officer realizes value will depend on our actual operating performance, stock price fluctuations and that named executive officer’s continued employment.

 

Information Relating to Equity Awards and Holdings

 

The following table sets forth information concerning stock options that have not been exercised for each of our named executive officers outstanding at December 31, 2007.

 

Outstanding Equity Awards at Fiscal Year-End for 2007

 

 

 

 

 

The following table sets forth information concerning the exercise of stock options during 2007 for each of our named executive officers.

 

2007 Option Exercises and Stock Vested

 

 

 

 

Potential Payments Upon Termination or Change-in-Control

 

We do not have agreements with any of our executive officers or employees pursuant to which they are eligible for potential payments upon termination or change in control of Alnylam.

 

Employment Arrangements

 

Each executive officer has signed a nondisclosure, invention and non-competition agreement providing for the protection of our confidential information and ownership of intellectual property developed by such

executive officer and a covenant not to compete with us for a period of eighteen months after termination of employment.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The following table provides information as of December 31, 2007 about the securities authorized for issuance under our equity compensation plans, consisting of our 2002 Employee, Director and Consultant Stock Option Plan, our 2003 Employee, Director and Consultant Stock Option Plan, our 2004 Stock Incentive Plan and our 2004 Employee Stock Purchase Plan. All of our equity compensation plans were adopted with the approval of our stockholders.

 

Equity Compensation Plan Information

 

 

 

 

Compensation of Directors

 

We compensate our non-employee directors for their service as directors. We do not pay directors who are also our employees any additional compensation for their service as a director. Accordingly, Dr. Maraganore does not receive any additional compensation for his service as a director.

 

Our compensation committee periodically reviews the compensation we pay our non-employee directors. Our compensation committee compares our board compensation to compensation paid to non-employee directors of similarly sized public companies at a similar stage of development in the biotechnology industry. Our compensation committee also considers the responsibilities we ask of our board members along with the amount of time required to perform those responsibilities.

 

Each non-employee director is eligible to receive a cash fee of $20,000 per year and the chairs of our board, our compensation committee and our nominating and corporate governance committee are entitled to receive an additional $5,000 per year. The chair of our audit committee is entitled to receive an additional $15,000 per year. Each non-employee director is also entitled to receive upon his or her initial election to our board a stock option grant for 30,000 shares of common stock, vesting annually over three years, and an additional stock option grant to purchase 15,000 shares of common stock at each year’s annual meeting at which he or she served as a director, vesting in full on the first anniversary of the date of grant. In addition, the chair of our audit committee is entitled to an additional stock option grant to purchase 10,000 shares of common stock per year. Our board may, in its discretion, increase or decrease the size of the award made to a director upon election or in connection with the annual stock option grant or make other stock option grants to

our directors. The exercise price of these stock options is the fair market value of our common stock on the date of grant.

 

We also reimburse our directors for reasonable travel and other related expenses incurred in connection with their service on our board.

 

The following table sets forth information concerning the compensation of our non-employee directors in 2007.

 

Director Compensation

 

 

 

 

 

 

 

 

 

Compensation Committee Interlocks and Insider Participation

 

During fiscal year 2007, the members of our compensation committee were Dr. Sato and Messrs. Starr and Vincent, none of whom was a current or former officer or employee of Alnylam and none of whom had any related person transaction involving Alnylam.

 

Board Recommendation

 

Our board of directors recommends a vote “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditors for the fiscal year ending December 31, 2008.

 

Our board has appointed the firm of PricewaterhouseCoopers LLP, an independent registered public accounting firm, as independent auditors for the fiscal year ending December 31, 2008. Although stockholder approval of our board’s appointment of PricewaterhouseCoopers LLP is not required by law, our board believes that it is advisable to give stockholders an opportunity to ratify this appointment. If this proposal is not approved at the annual meeting, our board will reconsider its appointment of PricewaterhouseCoopers LLP. Representatives of PricewaterhouseCoopers LLP are expected to be present at the annual meeting and will have the opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions from our stockholders.

 

Our board of directors does not know of any other matters which may come before the meeting. However, if any other matters are properly presented to the meeting, it is the intention of the persons named in the accompanying proxy card to vote, or otherwise act, in accordance with their judgment on those matters.

 

In order to be included in proxy material for the 2009 annual meeting of stockholders, stockholders’ proposals must be received by us at our principal executive offices, 300 Third Street, Cambridge, Massachusetts 02142 no later than January 1, 2009. We suggest that proponents submit their proposals by certified mail, return receipt requested, addressed to our Corporate Secretary.

 

In addition, our bylaws require that we be given advance notice of stockholder nominations for election to our board of directors and of other matters which stockholders wish to present for action at an annual meeting of stockholders, other than matters included in our proxy statement. The required notice must be in writing and received by our corporate secretary at our principal offices not later than March 5, 2009 (90 days prior to the first anniversary of our 2008 Annual Meeting of Stockholders) and not before February 3, 2009 (120 days prior to the first anniversary of our 2008 Annual Meeting of Stockholders). However, if the 2009 annual meeting of stockholders is advanced by more than 20 days, or delayed by more than 60 days, from the first anniversary of the 2008 Annual Meeting of Stockholders, notice must be received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of (1) the 90th day prior to such annual meeting and (2) the 10th day following the date on which notice of the date of such annual meeting was mailed or public disclosure of the date of such annual meeting was made, whichever occurs first. Our bylaws also specify requirements relating to the content of the notice which stockholders must provide, including a stockholder nomination for election to our board of directors, to be properly presented at the 2009 annual meeting of stockholders.

 

By Order of the Board of Directors

 

John M. Maraganore, Ph.D.

Chief Executive Officer

 

Cambridge, Massachusetts

April 25, 2008

 

OUR BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE ANNUAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, YOU ARE URGED TO VOTE BY PROXY OVER THE INTERNET, BY TELEPHONE OR BY MAIL AS DESCRIBED IN THE ENCLOSED PROXY CARD. A PROMPT RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING AND YOUR COOPERATION WILL BE APPRECIATED. STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY VOTE THEIR STOCK PERSONALLY EVEN THOUGH THEY HAVE SUBMITTED A PROXY PREVIOUSLY.

Appendix A