Most drugs exert their therapeutic effect by interacting with proteins. But this paradigm is changing as scientists learn to target RNA, the molecule that transfers genetic information from DNA to direct protein production. New technologies are trying to harness the power of an elaborate method of gene regulation known as RNA interference, or RNAi.

RNAi is a process in which small RNAs direct cellular RNAi machinery to degrade messenger RNA, thereby "silencing" the expression of the gene by blocking production of the protein. To exploit this phenomenon, biologists can design short interfering RNAs, or siRNAs, to silence the expression of just about any gene.

There is significant potential for RNAi therapeutics to effectively treat any disease caused by expression of unwanted genes, including cancer, viral infections, and neurodegenerative disorders. While this enchanting potential is very comforting, I prefer to analyze RNAi therapeutics with the approach of a critical biotech investor. I'll start by considering the qualities and advantages of RNAi over existing therapeutic technologies. Then, I'll address the hurdles and limitations of this emerging technology. Finally, I'll take a brief look at RNAi-based therapeutics as a potential investment, examining the strategic design efforts of a few companies trying to bring this emerging technology into the clinic.

Qualities and advantages
Therapeutic strategies like protein replacement, which is additive, focus on providing normal proteins to patients who lack them. In contrast, RNAi is subtractive. Unlike small-molecule drugs that temporarily interfere with protein function, RNAi eliminates expression of the protein altogether. By dealing with the "root cause" of disease, RNAi therapeutics may prove more potent than small-molecule therapies.

A key quality of RNAi is specificity: siRNAs can be designed that very effectively discriminate between disease genes and normal genes. If this specificity holds up in clinics, RNAi could become an ideal therapeutic technology for unmet medical needs like neurodegenerative disorders. Furthermore, rules for rational design of siRNAs are emerging. If the first generation of siRNA drugs proves worthy in the clinics, expect rational design to fuel a crowd of RNAi-based therapeutics into clinical trials.

Challenges and limitations
Using siRNAs as drugs presents several challenges. RNA is inherently unstable under most biological conditions, so chemical modifications are required to prevent rapid degradation after the drug is administered. Furthermore, siRNA drugs must be targeted to and taken up by the appropriate cells and tissues. Not surprisingly, many siRNA drugs in development are delivered by local application, although strategies are emerging for systemic delivery as well.

Early clinical studies will need to establish the toxicity and potential side effects of siRNA drugs. For instance, no one knows how a prolonged siRNA drug regimen might affect the normal functions of the RNAi machinery. Furthermore, understanding and minimizing the human immune response to siRNA drugs will be a particularly important hurdle in the development of this therapeutic technology. Also, silencing of target genes in non-target tissues could result in unwanted side effects or toxicity. All of these issues should be addressed in clinical trials.

The players
So far, we've touched on the potential of RNAi-based therapeutics, and the challenges involved in making siRNA drugs a viable therapy. But as an investor, you're probably wondering if any companies pioneering this emerging technology are worthy of investment. Here is a brief description of the key public companies trying to bring this technology into the clinic.

ISIS Pharmaceuticals
ISIS Pharmaceuticals (NASDAQ:ISIS) isn't focused on siRNA drugs, but rather specializes in antisense drugs. Like siRNAs that mediate RNAi, antisense technology also involves the use of small RNAs that silence gene expression, but the mechanism of action is different. Nevertheless, ISIS has played an important role in the development of RNA-based therapeutics, particularly with its product Vitravene. Vitravene was the first antisense drug to win Food and Drug Administration approval. Used to treat cytomegalovirus retinitis in AIDS patients, Vitravene is injected into the eye and works by silencing expression of a protein essential to viral replication. Its success has prompted a localized-treatment strategy for several first-generation siRNA therapeutics.

ISIS has several other antisense inhibitors in early clinical trials, using a variety of delivery strategies including oral, enema, injection, and topical cream. It is unclear what value, if any, these projects will provide down the line. ISIS also licenses its antisense technologies to pharmaceutical companies, including GlaxoSmithKline (NYSE:GSK) and Pfizer (NYSE:PFE), for target validation studies. These partnerships aren't likely to enhance the pipeline, but they do provide a steady source of revenue.

Despite Vitravene and its slew of partnerships, I'm skeptical about the long-term prospects of ISIS. With a weak balance sheet ($50 million more debt than cash), a pipeline stuck in early clinical trials, and mounting evidence that RNAi-based silencing mechanisms are more potent than antisense mechanisms, ISIS could quickly become the dinosaur forebear of this emerging technology. Look for other companies to develop siRNA drugs analogous to ISIS antisense compounds, cannibalizing the pipeline with a more potent technology.

Sirna Therapeutics
With $45 million in cash and no debt, San Francisco-based Sirna Therapeutics (NASDAQ:RNAI) is working hard to address the technical challenges and make siRNA drugs practical for clinical development. The company developed and patented methods for making chemically modified siRNAs with a half life of 17 days in human serum, and for practical large-scale synthesis and manufacturing of these compounds. Furthermore, Sirna is developing technologies for systemic delivery of siRNAs with tissue targeting, including a technology that effectively delivers siRNA drugs to the liver.

With Sirna-027 entering phase 2 clinical trials for age-related macular degeneration (AMD), Sirna is vying to become the first company to bring an siRNA drug to market. With several AMD treatments already on the market, this may seem an odd choice as the flagship of the pipeline. However, AMD is a strategic target because it allows for localized drug delivery. Although the reward for this strategy is potentially low, so is the risk. Expect many of the first-generation siRNA drugs to target such low-hanging fruit.

In addition to the treatment for AMD, Sirna is developing a diverse pipeline of RNAi-based therapeutics. Its siRNA drug for hepatitis C virus, entering phase 1 clinical trials late this year, has all the bells and whistles: stabilizing chemical modifications, nanoparticle-based liver-targeting, and multiple target sequences to minimize escape mutants. Other preclinical projects include siRNA drugs for asthma, Huntington's, and diabetes. The company is even developing a siRNA drug for permanent hair removal, an intriguing cosmetic application of this emerging technology.

Alnylam Pharmaceuticals
Alnylam Pharmaceuticals' (NASDAQ:ALNY) pipeline isn't quite as advanced as Sirna's, and its balance sheet isn't quite as strong, but that should change with an upcoming stock offering that could raise up to $65 million for the company. The pipeline consists of a phase 1 siRNA drug for treatment of respiratory syncytial virus in children and a preclinical siRNA drug for pandemic flu, which could move into phase 1 by the end of this year. Thus, the money from the secondary offering should be put to good use beefing up the pipeline.

Alnylam's biggest strength is probably its intellectual property, the licensing of which has given the company slightly higher revenues than Sirna. The company also forged a series of partnerships with big pharmaceutical companies like Merck (NYSE:MRK) and Novartis (NYSE:NVS) aimed at developing siRNA therapeutics for various human diseases. Look for Alnylam to continue to license its technology to big pharmaceutical companies in large alliances focused on drug discovery and target validation. These partnerships have the potential to bolster Alnylam's pipeline while providing modest revenues.

Worthy investment?
As more and more siRNA drugs march through human clinical trials, expect talking heads and biotech gurus to tout this as "the next big thing." These drugs might indeed be "the next big thing" for the next couple of years, but that doesn't make them sound investments for the long term.

Generally, if you're averse to risk, it's probably best to stay away from stocks like these, which are mostly valued for their hopes and dreams. However, if you enjoy a bit of volatility, particularly if you've already got a basket of biotechs in your portfolio, owning one of the above companies might be an interesting if not lucrative way to follow the emergence of this technology.

Personally, I plan on arriving late to the party. If this technology does pan out, there will be plenty of lower-risk opportunities to profit from RNAi down the road.

Interested in emerging technologies? Try Motley Fool Rule Breakers free for 30 days and maybe you'll find something you like.

GlaxoSmithKline and Merck are Motley Fool Income Investor recommendations. Pfizer is an Inside Value pick.

In case you hadn't noticed, Fool contributor Jason Mac Gurn isn't exactly Mr. Wizard. But he does strive for wizardly returns in his portfolio. He doesn't own shares of any companies mentioned in this article.