Alnylam Pharmaceuticals' (ALNY +0.05%) stock went vertical in the past month -- up over 50% -- and there might be even more growth on the way. Sales of its top-earning medicines are booming, and breakthroughs in clinical trials have added to the enthusiasm.
But now could also be a dicey time to invest even though, on the surface, everything looks to be going swimmingly. Let's investigate why and think about when it might be a more favorable time to approach this stock.
NASDAQ: ALNY
Key Data Points
Receiving good news on a clinical trial
Alnylam has a small handful of medicines on the market, led by its drugs Onpattro and Amvuttra, which are intended to treat peripheral neuropathy caused by hereditary transthyretin amyloidosis (ATTR), which is a rare but deadly and progressively worsening heart disease.
When paired with sales of its other products, the company made more than $884.2 million in trailing 12-month (TTM) revenue, though it's nowhere near being profitable. It's also pursuing further development of both of those programs with the intent of expanding their indications and turning the pair into cash cows through the rest of the decade.
Around 50,000 patients have hereditary ATTR globally, and as many as 300,000 have the non-hereditary version of the disease that's treatable with some of the same therapies. Management's plan is to tightly focus on a single rare disease market could turn out to be brilliant in the long run. While investors might balk at the prospect of targeting such a small market, other major businesses like Vertex Pharmaceuticals have shown such business models to be extremely viable.
In the long run, cornering a rare disease market could be quite profitable as the accumulation of institutional knowledge and deepening connections with patient advocacy groups yield more and more value in the research and development (R&D) and commercialization processes over time. And Alnylam just got a critical set of results that put it one step closer to realizing its ambitions.
On Aug. 3, it announced that its phase 3 clinical trial of Onpattro was effective at helping ATTR patients to perform a six-minute walking test even 12 months after treatment. And the drug was also found to improve patients' quality of life as scored on an objective rubric. That's all great news, and it's powering the stock higher and higher. Better yet, the company will be filing for an expanded approval with regulators before the end of the year, and that could pave the way for it to realize more revenue growth through the end of the decade if they assent.
But there are a pair of big catches that investors need to consider.
Better to buy the rumor and sell the news
With the market's expectations of Onpattro's success so obviously sky-high, Alnylam's stock price might not actually rise that much until it can prove that the top-line growth it's slated to attain will translate into earnings. In other words, the market has likely priced in the idea that it'll be able to secure an expanded regulatory approval next year. And unless the growth that follows will be profitable, it won't cause the market to reassess the stock's valuation.
So people who buy the stock today -- after the biggest price movement in quite some time -- will probably not see anything close to a similarly sized movement upward anytime soon, if they ever do. Plus, there's no guarantee that the company will be able to grow its share price in the long term either as it isn't generating profits that could be used to reward shareholders with stock buybacks. There's a good chance that'll change as management expects the company to become profitable, or close to it, before the end of 2025.
The other problem is that with expectations about its performance so inflated, any bumps along the road, especially if they occur with Onpattro, will be especially detrimental to new shareholders. It isn't that Alnylam is a bad company or that it's at a high risk of fumbling its work to commercialize the drug at the finish line, just that it's a risky time to buy because mundane delays or banal hiccups with regulators would probably have a negative impact.
Therefore, it's probably best to wait a quarter or two for the froth to settle before proceeding with a purchase of its shares for a long-term hold.
