A big deal was announced between Roche and Alnylam today. Roche bought about 5% of ALNY for $42m, so the whole company is worth about $840m. But that's not all. They also paid $331m to license the RNAi IP, and additional aspects of the deal could make it worth as much as about $1B. FierceBiotech called it a billion-dollar lesson in the economics of RNAi. It just keeps on sounding as though the management of ALNY is doing all kinds of things right. As one of the couple of companies with IP on RNAi, it seems that they are going to leverage it into big deals rather than selling out.
I'm understanding a little better how investing in biotech works. It seems that you need great technology and really good management. That's obviously true in other sectors, but these are especially important in biotech because it's typically such a lag between the company going public and the product coming to market. Once the product is in the market, the only risk is market risk, ie will the product sell as well as expected. CBST is an example that I've discussed before of a company that may be having exactly this sort of problem. (We'll see after next Wednesday's earnings announcement whether CBST has figured this out.) At the stage where ALNY is, though, there's also the risk of whether the technology will deliver on its promise. When Sirna was bought by Merck last year ($1.1B!), the market saw it as a validation of the technology, and ALNY went up to about $22. Since then, ALNY slowly dropped down to $15 prior to today's announcement. (The funny thing is, I was just thinking last week that ALNY was looking cheap. D'Oh!) Now RNAi is again validated by the interest shown by Roche. Right now the market cap is $868m. Is the future growth of RNAi worth more than the valuation from this deal with Roche (ie, $840m)? I think so - it would be more than the $28m difference, I think.
But what happens in the next couple of days? What I've seen before 
has been that after the excitement wears off, the stock price will drop a little until it finds a new equilibrium. A great example of this is what happened with Novacea recently when they announced a deal with Schering-Plough. I suspect that this will happen with ALNY as well, unless they make another announcement in the near future (which the CEO John Maraganore hinted at in one of the stories I read about today's deal). Also, they'll be announcing earnings in just under a month. It won't be a surprise, but they'll probably be beating whatever analyst estimates there were. Will the stock price respond? Barring earnings surprises, 
I wonder whether the stock fluctuation exhibited by Arena is more typical - two peaks and three valleys over the last year. All of this makes me wonder whether investing in biotech could be enhanced by maintaining an investing position while also having a trading position. Today I wouldn't mind selling part of my ALNY position, but I guess I'm a little afraid of it not following the pattern I've seen before. (It's already down a bit in afterhours trading.) I sold off a position in Medarex before, and got a little burned by that. Like MEDX, ALNY is a company that I believe in long term. Should I just hang on to what I've got?
has been that after the excitement wears off, the stock price will drop a little until it finds a new equilibrium. A great example of this is what happened with Novacea recently when they announced a deal with Schering-Plough. I suspect that this will happen with ALNY as well, unless they make another announcement in the near future (which the CEO John Maraganore hinted at in one of the stories I read about today's deal). Also, they'll be announcing earnings in just under a month. It won't be a surprise, but they'll probably be beating whatever analyst estimates there were. Will the stock price respond? Barring earnings surprises, 
I wonder whether the stock fluctuation exhibited by Arena is more typical - two peaks and three valleys over the last year. All of this makes me wonder whether investing in biotech could be enhanced by maintaining an investing position while also having a trading position. Today I wouldn't mind selling part of my ALNY position, but I guess I'm a little afraid of it not following the pattern I've seen before. (It's already down a bit in afterhours trading.) I sold off a position in Medarex before, and got a little burned by that. Like MEDX, ALNY is a company that I believe in long term. Should I just hang on to what I've got?
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