Alnylam Pharmaceuticals Inc. (ALNY)

Current Price: $13.02

Without going into a lot of detail about what this company does I recommend that you read the first half of the company’s 10-K. But I must say the idea behind this company is extremely, extremely cool. The only problem is they don’t exactly have a working drug, they only have potential. The potential is immense. Now, I could not evaluate this company according to traditional metrics because well, they don’t make any money, they have no cash flow, no real financials that matter. My expertise lies more within identifying how a company may manipulate earnings but I will give this company review a shot. Would I invest in this company? No. I am more conservative and like to buy good companies who grow tremendously and generate significant cash flow and growth rates. I hesitate to say that this company is the next big thing; however, if they were to harness this technology, this company would be worth at least 10X what it is today. They recently began their first trials on humans for RSV (respiratory syncytial virus), and a positive outcome from this could spell $$$ for investors. They are currently looking for solutions to diseases such as Macular Degeneration, Parkinsons, Spinal Cord Injuries ( to prevent paralysis) and Cystic Fibrosis. They have a partnership with MRK that extends until September 2008, one would assume that if they don’t have a viable product by then that relationship could be at risk although right now they have suspended their relationship for Macular Degeneration. The partnership with Medtronic could be worth $21 million for the company, although it could also be worth 0 if MDT does not like the outcome. They have a strange Isis investment: the way it reads is that they paid Isis $5.5 million for $10 million, how this makes sense I will never know. The two main competitors in ALNY’s specific space are Sirna Therapeutics Inc. (RNAI) and Acuity Pharmaceuticals. This company will not make any money for a very long time barring a miracle. Revenue for 2004 was around $4 mil, while the net loss was around $32 mil.

As of the most recent quarter there has been a large uptick in R&D spending which is to be expected. In 2006 I would expect that this company will increase R&D a tremendous amount in FY2006. As a product nears viability this company’s R&D will shoot through the roof and losses will pile up, luckily that is not what this company is valued on, its all about the future for these guys. Novartis taking a 19.9% stake in this company is a good sign. But it is currently reflected in the price. I would also predict that this company will miss expected EPS loss projections this year. They are going to lose far more money that analysts estimate due to their increased focus on coming up with a drug for avian flu and the RSV potential.

How I would trade this stock: Well if I had to own this stock this is how I would play it, first, this stock should not constitute more than 5% of your overall portfolio. That is a given. It is highly speculative. Although in the context of an overall diversified portfolio this company could yield a nice return. Over the coming year my gut feeling on the stock is that it will trade higher. This stock could take an impressive trip up if the Avian Flu is discovered in the US. Not because they have a viable alternative that could help, but on anticipation that they could one day come up with something. It’s basically a hope stock, with really amazing ideas underlying it. What I would do if I owned it is build a core position as the stock trades down, and then on days that the company issues worthwhile press releases (they issue countless PR’s, in fact its unnecessary to issue this many, in general companies that issue excessive PR’s are not good companies) and the stock trades up 20-50% take some off the table. Then buy it back when the stock comes back down and people realize that “hey you know what they still don’t have a viable product”. It is essentially trading around a core position. Personally, I would miss the run up in this stock while it continues to lose money as I am just too conservative to own a speculative stock such as this, I much prefer to speculate in stocks that at a minimum make money, but to each his own. This is a very interesting play, and I must say from what I have seen I do like this company and what it potentially could one day offer.


*If anyone has any thoughts on how to value this stock email me @ randommarketthoughts@gmail.com
The only thing I can think of is a multiple on their revenue.

**This stock has at least 4 years before it may achieve an y semblance of financial success so as long as its backers are with it I would stay with it, if they bail so should you.

***This stock will probably move significantly on Jan 11th, more than likely to the north as the present at a JP Morgan Conference.

****Do not buy this stock if you are looking for an acquisition target, it is not one. They have controls in place to significantly deter that from taking place.

*****It is also not covered by many firms as this company grows and coverage is initiated it could get a boost from subsequent Buy ratings. It will be difficult to issue a sell on this company based on the probability of getting burned! FYI the earliest estimates for profitability at this company are in 2011, I think that may be optimistic.


ALNYLAM PHARMACEUTICALS, INC.
Alnylam Pharmaceuticals, Inc. is a biopharmaceutical company seeking to develop and commercialize new drugs that work through a recently discovered system in cells known as RNA interference, or RNAi. RNAi is a natural mechanism for selectively silencing genes. Genes provide cells with coded instructions for making proteins, and silencing a gene refers to stopping or reducing production of the protein specified, or encoded, by that gene. Using our intellectual property and the expertise we have built in RNAi, we are developing a set of biological and chemical methods and know-how that we expect to apply in a systematic way to develop RNAi therapeutics for a variety of diseases.

Check out the company website for more info:

http://phx.corporate-ir.net/phoenix.zhtml?c=148005&p=irol-IRHome

Next Expected Report Date: 02/13/06

The company's expertise in designing and optimizing RNAi therapeutics has enabled Alnylam to form major alliances with leading companies including Merck, Medtronic, and Novartis.

Background on RNA technology:

http://biology.plosjournals.org/perlserv/?request=get-document&doi=10.1371/journal.pbio.0020028

Filed on December 16, 2005 for a 75 mil secondary offering. The company is financed almost exclusively by selling equity stakes. The stock jumps when companies take additional stakes in the company. Very volatile.

Dec. 19, 2005--Alnylam Pharmaceuticals, Inc. (Nasdaq: ALNY - News), a leading RNAi therapeutics company, announced today that it has initiated a Phase I study in the U.S. to evaluate the human safety and pharmacology of ALN-RSV01, an RNAi therapeutic, in healthy volunteers.
RSV infection is a cause of serious disease and hospitalization in infants, the elderly, and others with compromised immune systems

NEW YORK, Dec 14 (Reuters) - Alnylam Pharmaceuticals Inc. said it received initial government funding to develop RNA interference therapy for pandemic influenza. The company said it expects to submit an investigational new drug application for RNAi therapy - used to "silence" disease-causing genes - for pandemic flu as early as the end of 2006.

9/7/2005 3:14 PM EDT
Shares of Alnylam Pharmaceuticals (ALNY:Nasdaq - commentary - research - Cramer's Take) were among the best-performing health-related stocks Wednesday, rising 43% after Novartis (NVS:NYSE - commentary - research - Cramer's Take) took a 19.9% stake in the company as part of a drug development collaboration.
Other interesting articles:

http://www.thestreet.com/_yahoo/stocks/robertsteyer/10212414.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA


http://newyorkmetro.com/lifestyle/sex/annual/2005/15061/index.html

Board of Directors: There is not a single independent member of the BOD at this company. They all have either ties with Biogen, venture capital firms, or work for ALNY. One of the founders is on the compensation committee. Not exactly what you want to see.

Alternative ways to play:
Nov. 14, 2005--Alnylam Pharmaceuticals, Inc. (Nasdaq: ALNY - News), a leading RNAi therapeutics company, announced today that it will be added to the NASDAQ Biotechnology Index effective with the U.S. market open on Monday, November 14, 2005.

IBB – is the Biotech index, much safer than individual stocks such as ALNY.

Also TINY & ARWR are VC’s that invest in Biotech, they also carry less risk that a straight Biotech play.

I might also recommend a paired trade with ALNY and RNAI. They may trade together but the success of one should more than offset the failure from another.