Here’s Why Alnylam’s Shares Are Tumbling

Alnylam's (ALNY 0.39%) Onpattro is the first Food and Drug Administration (FDA)-approved RNAi therapy. However, competition is fast approaching and could make it difficult for Alnylam to pocket profits. Can Onpattro carve out significant sales as a treatment for polyneuropathy in hereditary transthyretin-mediated (hATTR) amyloidosis?

In this clip from The Motley Fool's Industry Focus: Healthcare, host Kristine Harjes and Motley Fool contributor Todd Campbell discuss the revolutionary approval and evolving competitive landscape in this rare-disease indication.

A full transcript follows the video.

This video was recorded on Aug. 15, 2018.

Kristine Harjes: Alnylam had its drug Patisiran, which is now known as Onpattro, approved last Friday for nerve damage that's caused by a rare disease known as hATTR. You would think that's good news, and it is. It's monumental, interesting news from a scientific perspective. From a stock perspective, the company's market cap actually fell a little bit in the wake of the news.

Todd Campbell: Alnylam is working on a mechanism of action that's pretty unique. They're targeting RNAi, RNA interference. Their goal here is, genes control the production of proteins. A lot of diseases are caused by the overproduction or underproduction or incorrect production of proteins by these genes. Messenger RNA is used to execute the genes' rules to create those proteins. RNAi is a naturally occurring path that disrupts the protein production.

What Alnylam has been able to do is develop this new drug that can interfere with the production of this protein that is, in these patients, being produced incorrectly. Because it's being produced incorrectly in these patients, it's building up in vital organs and around nerves. That's causing all sorts of problems for these patients.

As you mentioned, it's a rare disease. This is the first FDA-approved treatment for it. Alnylam estimates that, based on the label they were given, they can treat about 3,000 people in the U.S. Their addressable market is about 3,000 people in the U.S. With a sky-high price tag, theoretically, that could still translate into a nine-figure drug. But, I'm sure we'll talk about this, there's some competition looming that we, as investors, have to be aware of.

Harjes: Yeah, absolutely. I want to talk first about the price that you mentioned, which is quite high. List price is $450,000 per year. They claim that after discounts, the price will be $345,000. [laughs] Quite the deal, there. They've also said that they're going to introduce value-based pricing, meaning that if the drug doesn't work or it doesn't work very well, you don't pay or you don't pay as much. The details on what that pricing structure breaks down to are still hazy. I think that's a big reason why investors reacted poorly to this news. Revenue forecasts with value-based pricing are very difficult to make.

I think people were disappointed about that, and I think investors were also disappointed over the label for the drug itself. Alnylam had hoped to include some trial results that showed cardiac benefits and put that on the label itself, but the FDA disagreed with that. Then, as you mentioned, also, there is competition coming, both from Ionis and Pfizer. That cardiac benefit could have been a differentiating factor on its label that it now doesn't have.

Campbell: It's been argued that that's actually the most important part of this patient population to address, the cardiac risk to these patients, and not having that data included on the label. Honestly, I didn't think they were going to be able to get that on the label. The study wasn't powered for that. I'm not surprised that's not on the label.

As far as the value-based pricing goes, what I've seen so far is, they're going to get a baseline reading on the patients. Nine months to a year later, they'll go back, get another exam on those patients to see whether or not their pain is being managed well and they're staying out of the hospital. If they're able to show that, in their view, they deserve the whole amount of money, the $300,000-plus. If they don't achieve that, that's when that rebate would come back into play.

What's interesting is, the value-based pricing deal is a rebate. We've heard a lot in the media about the concept of getting rid of rebates. I don't know how that value-based pricing would work if Alnylam couldn't offer rebates anymore. I don't know how that would work. That's something to keep in mind.

You did also mention the competitive landscape. That's fast evolving. If you look at Ionis' drug, they're working with their spin-out, Akcea, on that drug. They've already won approval in the European Union for it. Alnylam has the first FDA-approved drug for this indication, but it's Ionis and Akcea that have the first European approval for this indication. And, the FDA approval for Ionis' and Akcea's drug is expected in October. You're not talking about a very big head start for Alnylam, which means you're going to end up making this decision based on what the doctor views as being the most efficacious and safest treatment, the easiest dosing ritual, etc. I'm not sure we can come to any conclusions on which of these is the better drug.

Then, you look at the Pfizer situation, which is really interesting. Pfizer is expected to roll out data later this month for a drug called Tafamidis. That's a Phase III trial, and it's specifically designed to evaluate the cardiac impact. Theoretically, if that trial's data results back up and show this is very good at reducing hospitalizations because of cardiac problems, it could end up carving away a lot of this relatively small market. It's a 3,000-patient market in the U.S. the way that Alnylam can target it. Maybe they're looking at it and saying, Alnylam has a high-priced drug, only 3,000 patients that they can treat, maybe they lose some of those to Ionis and Akcea, and they lose some of them to Pfizer.

Harjes: The Pfizer drug is pretty interesting. It's an oral drug, so it has the convenience edge. It's also been on the market in Europe for years. It has an established safety track record. If I'm a doctor and I'm trying to decide which medicine to prescribe, I'm probably going to choose the one that I know is safe.

This is not all bad news. It's still awesome news for patients, to have this treatment on the market. Even though there are around 3,000 people that the drug can currently address, it's widely believed that this is a more widely spread disease that could affect around 50,000 people worldwide, it's just under-diagnosed. Previous treatments were just for symptom management. To have a drug that can come in and actually silence the gene responsible for it is pretty cool. This is also the first time that an RNA interference drug was ever approved by the FDA! This is Nobel prize-winning technology. Very cool from a scientific perspective, from a patient perspective.

It's also good news for Alnylam, in terms of validating its RNAi-based platform. They have three other late-stage RNAi drugs being developed. Hopefully, this goes a long way to validate that, yes, the FDA will approve RNAi drugs.

That said, though, if you tie it all together, the stock is sitting at $9 billion in market cap. That, to me, seems pretty expensive. I would say that indicates that success is expected now for all of those other late-stage drugs.

Campbell: That's a great point. In the past year, a lot of exciting technology that you and I have talked about for the last couple of years is finally making it to market. One of the things investors are seeing is, there's a big difference in how investors value clinical-stage companies vs. commercial-stage companies. Oftentimes, what ends up happening is, it's not that easy to jump out of the gate with a big commercial success, even if you have pie in the sky forecasts for it. So, investors tend to move into other, more exciting clinical-stage companies. As a result, the share price of these stocks tends to trade sideways to down, at least until we get a couple of quarters behind it and can actually see that, yes, this is indeed a very big market they're able to tackle.

Harjes: All told, we covered three stories of stocks losing value this week. I want to end us on some optimism. I'm taking this from FDA commissioner Scott Gottlieb regarding the Alnylam approval. He says, "The approval is part of a broader wave of advances that allow us to treat disease by actually targeting the root cause, enabling us to arrest or reverse a condition rather than only being able to slow its progression or treat its symptoms." Overall, I think that's very positive news for the whole medical landscape. Having one and done models, where you can get in, target the root cause of a disease, and rather than having patients have to manage their symptoms for the rest of their lives, being able to actually get at that root cause and stop or reverse the disease itself, is really great news. I love seeing companies working on this type of treatment.

Campbell: It only took 16 years to do it, but they did it! [laughs]

Harjes: Yeah, it has taken Alnylam a long, long time. You can just hear their management team being like, "Finally! This is the best moment of my career! It has taken me decades to do this!" They definitely did not have an easy pathway.

Campbell: Right. If you toss aside the dollars and cents of it, this is, like you said, such an exciting time for patients.