RNA interference (RNAi) in the new millennium has become what online retailers were in the 1990s: Everyone wants in, no matter the cost.

This week, Alnylam (NASDAQ:ALNY) announced that it had licensed some of its intellectual property to Roche for $331 million. The deal includes Roche's acquisition of a 5% stake in Alnylam at $21.50 per share. Roche also gets Alnylam's European research site -- employees and all -- as part of the deal. The deal could be worth more than $1 billion, if milestones are met.

Roche plans to use the technology to develop treatments in oncology, respiratory diseases, metabolic diseases, and certain liver diseases. Roche is optimistic about the addition of the intellectual property, and expects the first clinical trials using RNAi to begin within two years. That sounds a little optimistic to me.

A little background
RNAi is one of the hottest new areas of drug discovery. Research into RNAi in worms, dating from 1998, resulted in a Nobel Prize last year, and development of the system in mammals has been ongoing since the initial discovery.

When genes instruct a cell to produce a certain protein, they do so by sending out specifically encoded messenger RNAs (mRNAs). RNAi technology uses small RNA molecules to bind to those mRNA strands, targeting them for degradation and keeping them from reaching their destination. Since many diseases result from cells producing too much of a certain protein, RNA could theoretically be used to block the production of those proteins.

Viral infections will be much easier to treat using RNAi than human diseases, because inhibiting the production of a viral protein won't affect other cells in the body. On the other hand, inhibiting the expression a human protein will affect many cells in the body, including ones not involved in the disease.

The hardest part of making RNAi treatments a reality is getting enough of the engineered RNA into the cells to have a therapeutic effect. As any researcher can tell you, RNA is notoriously unstable -- although RNAi companies are testing tricks to decrease degradation, like capping the ends of the molecules. Also, as with any drug, the concentration of the drug surrounding the targeted cells has to be high enough to have a therapeutic effect. Until technologies are further developed, this will likely limit the diseases that can be treated to those that can be reached easily -- the lungs, via an inhaled mist, for instance.

Alnylam's pipeline
Alnylam's lead drug, ALN-RSV01, targets a protein in the shell of the respiratory syncytial virus (RSV), inhibiting its ability to replicate. Alnylam has just begun phase 2 clinical trials to treat RSV infections of the respiratory tract. At this pace, it should gain marketing approval -- if it's effective -- in about seven years.

All of Alnylam's other programs -- and there are a lot of them, from biodefense to cancer -- are in preclinical studies. On its own or with its partners, Alnylam expects to file two Investigational New Drug applications with the FDA this year, and another in 2008.

RNAi is the new black
Deals for RNAi technology have been soaring in recent years. Just last week, AstraZeneca (NYSE:AZN) teamed up with Silence Therapeutics in a research and development deal worth as much as $403 million. Last year, Merck (NYSE:MRK) bought Sirna Therapeutics outright for $1.1 billion. The deals haven't been limited to takeovers; Rosetta Genomics was able to capitalize on its intellectual property and make an IPO earlier this year. It's banking on the use of naturally occurring microRNAs to silence genes.

Alnylam has been at the root of many deals over the last few years -- licensing its technology to anyone who will throw cash its way. Two years ago, it made a similar deal with Novartis (NYSE:NVS) in exchange for a 20% stake in the company. The company also has agreements with Biogen Idec (NASDAQ:BIIB), Medtronic (NYSE:MDT), and Merck.

Alnylam has even been on the receiving end of intellectual property exchanges. In a 2004 deal, it licensed the intellectual property for small interfering RNA from Isis Pharmaceuticals (NASDAQ:ISIS) including molecules targeting RNAs in the Hepatitis C virus for treating liver cancer.

Good deal?
Alnylam doesn't need Roche's money right now. It had $204 million in the bank at the end of last quarter, and it expects to burn through just $24 million for the rest of the year, after factoring in licensing payments it will receive. But as Alnylam moves more compounds farther into the pipeline, its burn rate will increase almost exponentially. Clinical trials are much more expensive than test tubes.

Personally, I think Alnylam is making out like a bandit in the deal. Its license with Roche is non-exclusive, and it has the ability to license the technology to other companies. Whether it will see any of the potential $700 million in milestone payments is too far in the future for anyone to know for certain. I would caution investors not to put the payments into the "future revenue" column yet. For now, stick to valuing the company based on its current pipeline.

RNAi can't silence this Foolishness:

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any companies mentioned in this article. Biogen Idec is aStock Advisor recommendation. The Fool's disclosure policy won't be silenced.