Thursday, May 10, 2007
Alnylam Drops Almost 10% Following Quarterlies- A Lesson in Biotech Investment
Does this large drop in the share price of the leading RNAi company mean that RNAi does not work any more? Does RNAi hold no commercial value? Although this suggestion is absurd, investors that are not familiar with the technology and are seeing their investment dwindle will get their bouts of doubt and fearing further share price declines sell their shares at the worst possible time. For a biotech investment to be profitable, however, especially when investing in “unproven” technologies, it pays to do your due diligence first before buying in, make sure you are comfortable with the technology, and then set yourself targets to determine whether progress of the company/technology is in line with your expectations. Keep in mind, “unproven” technologies generating losses due to expensive research and development may be seen by some Wall Street analysts as having little to no economic value according to outdated valuation methods, and if those sentiments prevail in the market it can cause share prices to be “undervalued” until real economic profits are generated. Unfortunately, this can hurt small companies that need to raise more money to support their R&D and actually increase their investment risk in a vicious feedback loop. I should add that given this situation, this blog is a small contribution towards helping the development of RNAi Therapeutics getting the proper support it deserves by educating about its biological and potential therapeutic value.
Coming back to Alnylam- it is a special case. Only rarely in the history of truly promising biotechnologies has there been such a prominent gate-keeper in terms of IP and concentration of talent. It is also fortunate that with more than $200M in cash they have a multi-year runway ahead of them and do not have to worry too much about days like these. For the biotech novice, I would therefore recommend taking a small stake in a company like this and let it mature for at least 5-10 years. For those more confident in their biotech stock picking ability, this may be an opportunity to add a little bit more RNAi to your portfolio.
For those interested in the report, visit http://biz.yahoo.com/bw/070509/20070509006170.html?.v=1
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