Alnylam Evenly Poised - Analyst Blog

We are maintaining our Neutral recommendation on Alnylam Pharmaceuticals (ALNY) with a target price of $15.

Alnylam, founded in 2002 and headquartered in Cambridge, Massachusetts, focuses on developing novel therapeutics based on a biological breakthrough known as RNA (Ribo Nucleic Acid) interference (RNAi). Alnylam’s founders pioneered the discovery of RNAi, and the company is currently utilizing this technology to build a pipeline of drug candidates for the treatment of a wide array of diseases.

Key programs in the areas of respiratory syncytial virus (RSV), Parkinson’s disease (PD), cystic fibrosis (CF) and spinal cord injury round out the company’s core focus. Alnylam generates revenues from research collaborations, grants and licensing of the RNAi technology outside its core focus area.

Alnylam has partnerships with several large pharmaceutical companies, such as Novartis (NVS), Biogen Idec (BIIB), Roche (RHHBY), Takeda, Kyowa Hakko Kirin, Cubist (CBST) and Isis Pharmaceuticals (ISIS), to help fund preclinical and clinical development. The company went public in the second quarter of 2004.

Alnylam reported a lower loss in the most recent quarter primarily because of the lower spending on research and development during the quarter. The second-quarter net loss of $0.35 per share was $0.20 below the loss per share in the second quarter of 2009. The Zacks Consensus Estimate indicated a loss of $0.30 per share for the reported quarter.

(Read our full coverage on this earnings report: "ALNY 2Q Loss Down on Lower Costs")

We are pleased with the company’s partnerships with the large pharmaceutical companies that provide it with financial muscle. The company boasts of a strong balance sheet. At the end of the most recent quarter, Alnylam had cash, cash equivalents and marketable securities of $396.9 million and zero debt. We are comfortable with the company’s current cash position, which allays concerns regarding its cash-burn rate.

However, we remain cautious about the success of Alnylam’s core RNA interference technology in drug development application. A very limited number of drug candidates based on RNAi discovery have been tested in animals or humans. This increases the uncertainty of any drug program using this technology.

We are also concerned about the slow pipeline progress, which leads us to believe that the company is not using its resources efficiently. Furthermore, the early stage of development also bothers us.

We believe that Alnylam’s current valuation adequately reflects its fairly balanced risk/reward profile. We see limited upside from current levels.

We have a Zacks #3 Rank (short-term Hold recommendation) on Alnylam’s shares. This implies that Alnylam is expected to perform in line with the broader US equity market over the next 1 - 3 months. We are Neutral on the stock in the long-term, which indicates that Alnylam’s shares are expected to replicate its short-term performance, but over 6+ months. Consequently, we advise investors to retain the stock over the time-period.