Related Party Transactions and Outside Related Director Information

Alnylam Pharmaceuticals, Inc. (ALNY)

4/28/2006 Proxy Information

Beginning in September 2005, we entered into a series of transactions with Novartis Pharma AG and Novartis Institutes for Biomedical Research, Inc., an affiliate of Novartis Pharma AG, who with Novartis Pharma AG, we refer to as Novartis. In September 2005, we executed a stock purchase agreement and an investor rights agreement with Novartis. In October 2005, in connection with the closing of the transactions contemplated by the stock purchase agreement, the investor rights agreement became effective and we executed a research collaboration and license agreement with Novartis.

Under the terms of the stock purchase agreement, on October 12, 2005, Novartis purchased 5,267,865 shares of our common stock at a purchase price of $11.11 per share for an aggregate purchase price of approximately $58.5 million, which, after such issuance, represented 19.9% of our outstanding common stock as of the date of issuance.

Under the terms of the investor rights agreement, we granted Novartis demand and piggyback registration rights under the Securities Act of 1933, as amended, for the shares acquired by Novartis. We also granted to Novartis rights to acquire additional equity securities of Alnylam in the event that we propose to sell or issue any equity securities, subject to specified exceptions, as described in the investor rights agreement, such that Novartis would be able to maintain its ownership percentage in Alnylam. Novartis agreed, until the later of (1) three years from the date of the investor rights agreement and (2) the date of termination or expiration of the Selection Term, as defined in the collaboration and license agreement, not to acquire any of our securities, other than an acquisition resulting in Novartis and its affiliates beneficially owning less than 20% of the total outstanding voting securities of Alnylam, participate in any tender or exchange offer, merger or other business combination involving us or seek to control or influence our management, board of directors or policies, subject to specified exceptions described in the investor rights agreement.

Under the terms of the collaboration and license agreement, the parties will work together on a specific number of selected targets, as defined in the collaboration and license agreement, to discover and develop therapeutics based on RNA interference, or RNAi. The collaboration and license agreement has an initial term of three years and may be extended for two additional one-year terms at the election of Novartis. In addition, Novartis may terminate the collaboration and license agreement after a period of two years under certain circumstances or in the event that we materially breach our obligations. We may terminate the agreement with respect to particular programs, products and or countries in the event of certain material breaches of obligations by Novartis, or in its entirety under certain circumstances for multiple such breaches. Novartis made up-front payments totaling $10.0 million to us in October 2005 in consideration for the rights granted to Novartis under the collaboration and license agreement and to reimburse prior costs incurred by us to develop in vivo RNAi technology. In addition, the collaboration and license agreement includes terms under which Novartis will provide us with research funding and milestone payments as well as royalties on annual net sales of products resulting from the collaboration and license agreement. The collaboration and license agreement also provides Novartis with a non-exclusive option to integrate our intellectual property relating to certain RNAi technology into NovartisŐ operations under certain circumstances, which option we refer to herein as the Integration Option. In connection with the exercise of the Integration Option, Novartis will be required to make certain additional payments to us. The terms of the collaboration and license agreement allow us to retain the right to discover, develop, commercialize or manufacture compounds that function through the mechanism of RNAi or products that contain such compounds as an active ingredient with respect to targets not selected by Novartis for inclusion in the collaboration and license agreement provided that Novartis has a right of first offer in the event that we propose to enter into an agreement with a third party with respect to any such target.