7 RNA Therapeutics Companies to Invest In
RNA therapeutics uses a technology called RNA interference (RNAi) which has rapidly advanced over the past few years and generated a great deal of interest from biotech investors. RNAi is a gene-silencing technology that turns on and off the genes that regulate proteins in people’s cells. Drugs being developed based on this technology have recently advanced, mostly due to improved delivery of these molecules to their intended targets. In a number of cases, nanotechnology-enabled drug delivery systems are being used, with companies such as Dicerna and Tekmira developing lipid nanoparticle drug delivery systems for RNAi molecules.
While trying to compile a list of “RNA stocks” out there, we noticed that companies involved in “RNA therapeutics” seem to be applying the technology in a number of different ways. Take a look at the below classification from Mirna Therapeutics, an RNAi company that just filed for IPO last week:
The many variations on the acronym “RNA” show us that not all “RNA companies” are created equal. Many investors go about trying to perform the nearly impossible task of picking the one company they think will most likely benefit from this new technology. The truth is that none or all of these companies could be successful and no amount of expertise will let us know which companies if any will be successful. The only way we can get exposure to this theme with the least amount of risk would be through diversification.
Out of all the companies listed above, 10 are publicly traded. One does not trade in the U.S. equities market (Silence Therapeutics), one is an OTC company (Marina Biotech), and one is far too large to provide any pure play exposure to RNA interference (Roche). This leaves us with 7 companies. Buying an equal amount of shares in each of these 7 companies would incur high transaction costs, so we can use the Motif Investing platform to create a “Nanalyze RNA Therapeutics” motif. Note that we cannot add Benitec yet because they just began trading on NASDAQ and are not yet available on the Motif platform. We can then market cap weight all of the remaining 6 publicly traded companies except Alynylam (NASDAQ:ALNY) as seen below:
Note that Arbutus used to be Tekmira until they changed their name. The above motif has performed very poorly over the past 5 years losing -49%. If you would have simply invested in a lower risk S&P tracker fund instead, your investment would be up +101%. The reason why we excluded ALNY in the above motif is because it would make up over 85% of the total portfolio given that is has a $7.8 billion market cap. It would also drastically alter the returns in a positive way. When we add ALNY to the above motif using a market cap weighting scheme, suddenly the motif’s 5-year performance increases to +215% versus the S&P’s +101% as seen below:
However, if we just look at ALNY’s performance on its own, we see an incredible +614% return over the past 5 years. It appears that investing solely in ALNY would have been the most lucrative decision to make so far when investing in RNA therapeutics. While ALNY outperformed significantly on its own, even a diversified portfolio with all 6 RNA therapeutics companies would have outperformed the S&P by +110%. There are many debates to be had about which (if any) of these companies will have the winning RNA therapeutics applications going forward that will ultimately provide investors with superior returns. If you were to try and pick one of these companies without knowing the details of the underlying technology, you would probably want to pick ALNY based on the fact that they dominate the others in size, and they have momentum on the back of strong historical performance.
A more diversified approach would be to create a motif with ALNY capped so that we still receive meaningful exposure to the smaller players. We can add ALNY with a capped weighting of 50% and if the Mirna Therapeutics IPO is successful, we’ll add that as well. We will also add Benitec as soon as it is added to the Motif platform bringing the total number of companies in our final RNA Therapeutics motif to 8. This way we can still receive exposure to all of the smaller companies but let the biggest player control a majority of the portfolio’s movements. Over time this diversified portfolio will provide us with visibility into how the “RNA therapeutics” space is performing as a whole.
Here at Nanalyze, we hold the lion's share of our investing dollars in a portfolio of 30 dividend growth stocks. Find out which ones in the Quantigence report freely available to Nanalyze subscribers.