A Biotech Has Good Company
If a company is judged by the company it keeps, then tiny
Alnylam Pharmaceuticals
(ALNY) - Get Report
is becoming quite popular.
Alnylam has no products, but it has big-name partners such as
Merck
(MRK) - Get Report
and
Medtronic
(MDT) - Get Report
, which are working with Alnylam to find treatments for eye disease, spinal cord injury and neurological ailments such as Alzheimer's disease.
Merck and Medtronic see enough promise in Alnylam and its research to have made deals with the Cambridge, Mass.-based biotech firm even before it starts its first clinical trial.
Founded in 2002, Alnylam went public in late May at an offering price of $6. The stock has climbed as high as $11; lately, it has been trading just under $7.
Alnylam, by the way, is named after the center star of Orion's Belt, part of the constellation Orion. Its researchers are trying to become the commercial stars for turning a natural cellular process called RNA interference into a therapeutic tool for many diseases.
RNA interference works by silencing genes, which give cells instructions on how to make proteins. When a specific gene is silenced, the cells stop making a specific protein. Alnylam figures that if it could control this process, it could stop certain genes from producing proteins that cause disease.
Merck Signs On
Merck took an early interest in Alnylam, signing a general technology agreement in September 2003. In June, Merck signed another deal to work on combating wet age-related macular degeneration, or wet AMD, a vision-robbing disease that primarily affects the elderly. Wet AMD is caused by runaway growth of blood vessels in the eye. When the vessels leak, this leads to a loss of central vision. If the disease attacks both eyes, a person can become legally blind.
There are few treatments for wet AMD, so physicians and financial analysts believe the field is wide open for new products.
The latest advance is Macugen, a drug from
Eyetech Pharmaceuticals
(EYET)
and
Pfizer
(PFE) - Get Report
. The drug reached the market in January.
Although it blocks growth of the excess blood vessels, Macugen isn't an RNA-interference drug.
Genentech
(DNA)
is working on a drug similar to Macugen.
Alnylam expects to start a clinical trial in the second half of this year. Like Macugen, Alnylam's drug will try to limit the production of vascular endothelial growth factor, or VEGF, a protein that stimulates blood vessel growth. If the drug stops VEGF, it can stop the unwanted blood vessels.
Another RNA interference company,
Sirna Therapeutics
(RNAI)
, started a clinical trial in November for a wet AMD therapy. It also is investigating RNA interference for treating hepatitis C, asthma, diabetes and Huntington's disease. It is collaborating with
Eli Lilly
(LLY) - Get Report
to develop cancer therapies.
And in October, a private company, Acuity Pharmaceuticals, started its clinical trial of a RNA interference drug for wet AMD.
An Expanding Relationship
Merck's connection with Alnylam is one reason why Michael King of Banc of America Securities recently raised his rating on the biotech company to buy from hold, even though he considers Alnylam to be an extremely volatile stock. Remarking that Alnylam is the leader in RNA interference research, he added that this "could be the next great therapeutic platform."
King likes Alnylam because it reduced some risk through its relationship with Merck, which included a recent milestone payment of $7 million. His early February report said that "Merck's reputation as a scientific leader ... speaks well, in our opinion, of what Alnylam must have accomplished in order to satisfy Merck that it is making progress in their agreement."
(Merck will pay Alnylam as much as $19.5 million, and the companies will jointly finance the development of -- and share in the profits of -- any RNA interference products in the U.S. Alnylam would get royalties on Merck's foreign sales of these products.)
King was neutral on the stock when he began covering Alnylam in September. At the time, it had the wet AMD agreement with Merck and a preclinical research arrangement with the Mayo Clinic for Parkinson's disease, in which Alnylam is trying to block production of a protein thought to cause the disease.
Subsequently, Alnylam announced a clinical development program with Merck for developing treatments for spinal cord injury and its own program for pursuing a treatment for respiratory syncytial virus infection, a dangerous disease of infants and young children.
Alnylam and Merck have started a preclinical program to determine if RNA interference can stimulate nerve-cell regeneration to reduce or prevent paralysis caused by spinal cord injuries. For the respiratory infection, Alnylam wants to develop a drug delivered directly to the lungs that will impair a viral gene's activity and prevent the spreading of the virus.
Adding those projects "substantially broadened its therapeutic product pipeline," said King, whose report came out just before Alnylam announced a collaboration with Medtronic. He doesn't own shares; his firm is a market maker, and it has had an investment banking relationship. Like the handful of firms that follow Alnylam, Banc of America Securities managed the company's initial public offering.
Another Big Partner
Alnylam and Medtronic are investigating treatments for neurological diseases such as Huntington's, Alzheimer's and Parkinson's. They are working on what the companies call "novel drug-device combinations," such as infusion therapy to deliver an Alnylam drug to a specific part of the brain.
If the initial joint technology development program works and the companies decide to develop a product, Medtronic "would make an initial equity investment in Alnylam and could make additional investments upon successful completion of certain predefined milestones," the companies said in February. The size of Medtronic's investment wasn't disclosed. Alnylam also could get additional cash milestone payments for each new product as well as royalties on sales of the drug-device combinations.
"We believe that partnerships validate Alnylam's leadership position in RNA interference," said Edward A. Tenthoff of Piper Jaffray in a Feb. 9 report after the Medtronic deal was announced. These transactions "provide funding and access external technologies and expertise necessary to develop this nascent, yet enormous opportunity."
Tenthoff has an outperform rating and a warning about a high volatility stock. "Alnylam is developing a completely novel therapeutic modility, which may fail in man," he said. "RNA interference therapeutics is already a competitive space. Alnylam will most likely have to defend and prosecute its patent estate." He doesn't own shares; his firm is a market maker and has had an investment banking relationship.