The pharmaceutical sector is well known as one of the most volatile and lucrative stock market sectors. It can also be the most emotionally rewarding, as you invest in companies that are creating innovative, life-saving treatments for various illnesses.
But with high returns come high risk, and the pharmaceutical sector’s reputation as one of the riskiest is well deserved. In fact, pharma’s inherent volatility can make it downright dangerous for investors. Share prices can quickly gain 100% on the back of the positive news or lose 50% or more in a short time when negative news hits the wire.
The key to success in pharmaceutical investing is to locate firms that are on the cutting edge of novel research and have multiple products in their pipeline. Ideally, you also want a company whose shares have recently taken a hit due to a short-term negative event that caused an investor overreaction.
With these points in mind, I have located an ideal pharmaceutical stock that has been recently been pushed down, creating massive upside potential.
The company, Alnylam Pharmaceuticals, Inc. (ALNY), was founded in 2002 with a mandate to advance RNA interference (RNAi) as an entirely new class of medicines.
RNAi is a natural mechanism that can silence genes to reduce the symptoms or occurrence of disease. Genes provide cells with the commands for creating proteins, and abnormally-made proteins are the cause of most human disease. When a gene is silenced, the cell stops making the protein specified by that gene, thereby reducing the occurrence and symptoms of the disease.
The issue with this approach is that modified RNA often provokes an immune response resulting in “cell suicide” in mammalian cells. Cell death makes sense in treating viral infections because it aims to prevent replication and transfer to nearby cells. However, it was the greatest obstacle to RNAi-based treatment of genetic disease.
Alnylam’s founders solved this problem by developing a new strategy to trigger RNAi in mammalian cells. In essence, the company used RNA strands just long enough to induce RNAi, but small enough to avoid inducing an immune response. Alnylam founders were the first to use “small interfering RNAs” (siRNAs) to bind to messenger RNAs (mRNAs) and silence disease-causing genes. These discoveries are what launched the application of RNAi as a new therapeutic strategy and, subsequently, Alnylam as a successful company.