Nanalyze

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:

RNA_Therapeutics_Companies

Source: Mirna Therapeutics

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:

RNA_Motif

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:

 RNA_Motif_W_ALNY

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.

Do you want to trade stocks for free? TD Ameritrade has completely eliminated commissions for  stocks, ETFs (domestic and Canadian), and options. Open up an account with TD Ameritrade today and make brokerage fees a thing of the past. Learn more.

  • dayne grimshaw

    think you will find benitec own shrna in its entirety.

    • Nanalyze

      Thank you for the comment Dayne. Many biotech analysts try to pick the “winner” out of a group of stocks and few get it right. Since it is impossible to spend as much time as a professional biotech analyst does on studying these companies, it may be wise to just buy them all and enjoy the added benefit of diversification. There may also be more than one winner, or even none at all.

  • Sean

    I think benitec needs alot more credit than it what being given both in this article and on the market. Its the one company with the most promise of a one shot cure, currently trading on the nasdaq and asx at a huge discount…

    • Nanalyze

      Thank you for the comment Sean. We didn’t see that Benitec is now traded on the NASDAQ. We have revised the article to include this piece of information. Note that we cannot add Benitec to our motif yet because they are not yet added to the Motif platform. Thank you for pointing that out!

  • Brama

    Hindsight is always 20/20. Investing in Alnylam 5 years ago may have made some people profit, but what are we trying to achieve in this article? Are we merely comparing *ick sizes, or are we actually looking at where each company is in stage of development, as well as the approach of therapeutics. Alnylam is further ahead, yes…but if you’re looking for a particular company with potentially superior tech that can be relevant both clinically as well as profit, look to Benitec.

    • Nanalyze

      Hi Brama. We didn’t see Benitec recently began trading on the NASDAQ as an ADS so we’ll add it to the motif after the Mirna IPO and rebalance adding both Benitec and Mirna. You’re right that past performance is no indicator of future results. However Alnylam has shown it can create shareholder value. It is also 130X the size of Benitec and with that size advantage, it can easily swoop in and grab anything perceived as a threat. This threat could be Benitec or any one of the other 15 companies listed in the article. Once we’ve created the final motif it will be interesting to watch which companies contribute positively to the portfolio and which don’t. We’ll publish the final motif in a future article.

      • Brama

        Gotcha. I guess I would have expected to see a little more regarding their approaches, but that would potentially push the article into more of a scientific realm rather than merely investment…but the key to investment is to do your own research. I would encourage readers to consider the technology Benitec has, since they are where Alnylam WAS. This potentially has the ability to create similar gains when efficacy is demonstrated by the Spring in their current hep c trial. It will be the proof of concept data that the market, investment, and the scientific community are waiting for. Thanks for your repsonse.

        • Nanalyze

          Speaking of the scientific realm, have you visited http://rnaitherapeutics.blogspot.hk/ ??? The writer’s name is Dirk Haussecker and he has published extensive research on his blog about the various players mentioned in this article, even Benitec, though he stopped blogging a few months ago. It would take a great deal of time to sort through all the available information but we’ll certainly look to do a deep-dive into Benitec in another article soon as many readers are showing interest in the company.

          • Brama

            Yes, I have visited there. Dirk is well known, but also has led many people to invest in Arrowhead, which performed less than optimally for many investors. Additionally, I had to rebuke his not-so-accurate criticism of one of Benitec’s announcements on Twitter. He is a very smart guy though. I glean as much as I can regarding the rnai space, but so far, multiple companies license Benitec’s technology, all the preclinical is supportive of Benitec’s tech, and the potential superiority of the tech will be breathtaking to behold if efficacy is demonstrated in this clinical trial…as it is proof of concept, and the floodgates of possible disease silencing treatments open.

  • John Bevy

    How about Regen Biopharma?

There’s Plenty of Room at the Bottom

And plenty of insights in our awesome newsletter.

Don’t have your M.D.?

We can help. Our MBAs will keep you informed about life sciences.