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Morningstar | Alnylam's RNAi Platform Bolsters Its Outlook in Genetic Disorders; Shares Attractive With $90 FVE

After a fresh look at RNAi leader Alnylam, we've lowered our fair value estimate to $90 per share, due to revised commercialization expectations and increased operating spending. We do not award the company a moat, but its expertise and systematic research methodology give it a competitive edge, in our opinion.

With several late-stage candidates in its abundant pipeline, Alnylam is one of only a few biotechnology companies with a systematic methodology for identifying targets and developing drug candidates. RNA interference, a mechanism that occurs naturally in cells and silences overexpressed genes, allows Alnylam to target disorders caused by genetic mutations, especially diseases caused by an accumulation of proteins. Aside from Onpattro, its only approved drug, Alnylam has several candidates in the pipeline, including givosiran for acute hepatic porphyria (AHP), lumasiran for primary hyperoxaluria Type 1 (PH1), inclisiran for hypercholesterolemia (partnered with The Medicines Company), and fitusiran for hemophilia. We believe the company's largest opportunity now is in ATTR amyloidosis, with Onpattro and next-generation vutrisiran.

On April 8, the company announced a new partnership with Regeneron. The new partnership was concurrently announced with the completion of the first five-year term of Alnylam's agreement Sanofi. We don't see this partnership shake-up as a concern, as Sanofi had already distanced itself from Alnylam with the alliance restructure in 2018, so it naturally follows that it would not renew the agreement for an additional term. Sanofi retains rights to fitusiran and is entitled to rights to an undisclosed rare-disease candidate, which both fit well with Sanofi's rare-disease and rare blood disease focus. Regeneron is a strong partner in ophthalmology, where Regeneron and Bayer's Eylea has steadily gained share in wet age-related macular degeneration and other eye indications.

The company's only marketed drug, Onpattro (patisiran), was approved in 2018 for polyneuropathy in hereditary ATTR amyloidosis, a rare indication with severe symptoms that don't manifest until adulthood. The drug launched with an annual list price of $450,000, illustrating the pricing power within the rare-disease space. Ionis, which has its own RNA-based platform that produces antisense drugs, garnered approval of Tegsedi in polyneuropathy in hATTR amyloidosis two months after Onpattro. However, Tegsedi's efficacy comes with a slew of side effects, and the label includes a black-box warning for thrombocytopenia and glomerulonephritis, which results in frequent monitoring requirements. While Tegsedi boasts a more convenient dosage, the frequent blood and urine monitoring and poor safety profile do not make it competitive in polyneuropathy when matched with Onpattro. Ionis could improve upon this profile with a next-generation candidate.

Alnylam's other main competitor in ATTR amyloidosis is Pfizer, with Vyndaqel/Vyndamax (or tafamidis), a small molecule that stabilizes the misfolded protein that causes the disease. Vyndaqel is currently only approved in cardiomyopathy, while Alnylam's Onpattro and Ionis' Tegsedi are approved in polyneuropathy. Many ATTR amyloidosis patients may have both cardiomyopathy and polyneuropathy, and both are commonly mis- or underdiagnosed. The addressable population within cardiomyopathy is larger, especially if diagnosis rates improve. Given this dynamic, we believe that the first competitor to gain approval in both cardiomyopathy and polyneuropathy in both hereditary and wild-type ATTR amyloidosis (with solid efficacy and minimal side effects) has the best chance to garner patient share.

Onpattro showed signs of efficacy in cardiomyopathy in earlier phase 3 trials but did not get approval, as the study was powered for polyneuropathy. After discussions with the U.S. Food and Drug Administration, Alnylam is set to initiate two studies in cardiomyopathy this year for both Onpattro and vutrisiran. While Pfizer's Vyndaqel did not impress on efficacy, it does offer convenient administration with a once-daily oral dose. However, Alnylam's vutrisiran is poised to compete well, as it is a weekly injection and an improvement over Onpattro's infusion once every three weeks. On a probability-weighted basis, we believe Alnylam's sales in ATTR amyloidosis could reach $1.8 billion by 2028. A key risk to this potential revenue stream is the underdiagnosis of the disease, as commercial success will depend on continued education and effective outreach. Pfizer's work with first-mover Vyndaqel and Alnylam's program for free genetic testing should boost diagnosis rates.

While we do not yet award it a narrow moat rating, the company has a positive moat trend. Its technology platform won a key approval with Onpattro for polyneuropathy in ATTR amyloidosis in late 2018, which should provide a steady flow of cash and enable the company to reinvest in its ample pipeline. The company has several other candidates in phase 3 trials in rare diseases where other drug candidates have historically failed. These programs are a testament to the company's platform, which continues to churn out candidates in a range of rare indications with high unmet need and strong pricing power. These dynamics result in steadily increasing returns on invested capital over the next several years.