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.
The next trick was how to deliver the RNAi to the cells. Alnylam’s proprietary technology conjugates (attaches) a sugar molecule called “GalNAc” to the siRNA molecule. This type of delivery is much simpler and allows for easier administration of their RNAi drugs.
Bullishly, recent findings from their Enhanced Stabilization Chemistry (ESC)-GalNAc-conjugate delivery platform demonstrated a 10-fold increase in potency over the earlier “standard template chemistry” (STC)-GalNAc-conjugate approach in pre-clinical and clinical studies and a durability of the effect that is thought to supports once-monthly or possibly even less frequent subcutaneous dosing schedules.
Thanks to this amplified potency and durability, as well as a wide therapeutic index, the conjugate platform has become their primary approach for the development of RNAi therapeutics and continued execution of entire product pipeline.
Despite these advances, shares plunged by more than 50% during the first week of October after the announcement that the ENDEAVOUR Phase 3 study Data Monitoring Committee (DMC) has recommended that Alnylam suspend dosing. The announcement led the company to discontinue development of revusiran, an investigational RNA interference therapeutic that was being developed for the treatment of hereditary ATTR amyloidosis with cardiomyopathy (hATTR-CM).
These disappointing results did not affect any of Alnylam’s other drugs in development.
The company’s approach is three-pronged; they produce medicines to treat genetic disease, cardio-metabolic disease, and hepatic infectious disease. Without going into (even more) detail, Alnylam has incredible products pending in each of the three prongs. It’s clear that the severe overreaction to suspending revusiran has created a tremendous buying opportunity.
Risks To Consider: Beware of the inherent volatility in pharmaceutical shares and always use fixed stops when trading in the sector.
Action To Take: Wait for a drop below $40 per share and set a buy limit order to trigger on an upside break of that level. Moves in both directions can be violent so always enter with preset limit orders to provide the best chance of catching the trade.
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