Alnylam's RNAi Failure Could Catch Monsanto Investors Off Guard

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The Nobel Prize made headlines on two occasions this week, albeit for very different reasons. As a handful of scientists across the globe joined an exclusive club of laureates, the technology awarded the Nobel Prize in Physiology or Medicine in 2006 suffered a devastating setback.

On Wednesday evening Alnylam Pharmaceuticals (NASDAQ: ALNY), a leading developer of RNAi drugs, announced that it had decided to discontinue the development of revusiran, its lead drug candidate, after an "imbalance" of deaths for patients receiving the experimental drug compared to placebo. Shares were cut in half -- extinguishing over $3 billion in market cap. The news sent shockwaves through the industry, with other RNAi drug developers experiencing declines of nearly 6%.

Perhaps investors are overreacting, or perhaps they're right to worry that RNAi technologies will fail to live up to their enormous hype. Either way, the news is potentially worse than expected, but not for the reasons you might consider. As it turns out, Alnylam Pharmaceuticals' failure highlights the risks of research and development projects hoping to leverage RNAi technology at agricultural biotech companies Monsanto (NYSE: MON) and Intrexon (NYSE: XON).

Nobel Prize hype, real-world difficulty

What exactly is RNAi, anyway? RNAi stands for "RNA interference," a natural process that has shown promise in regulating gene expression in humans, plants, and other organisms in a controlled setting. In biopharma, researchers are exploring its ability to "turn off" or "turn down" the production of misfolded proteins that cause disease. In agricultural biotech, researchers have used the same technique in the lab to engineer better seed varieties: Monsanto has enhanced the oil profiles of soybeans, while Intrexon has made non-browning apples by reducing the amount of a protein that oxidizes (and turns the apple brown) when exposed to air. Other seed varieties made with RNAi include decaffeinated coffee, nonallergenic peanuts, and nicotine-free tobacco.

Researchers can target protein production with RNAi by knowing the sequence of the gene in question. But therein lies the problem: Two or more genes can have long stretches of similar sequences. That's a problem if, say, a disease-causing gene a compound is targeting shares a sequence with a gene essential to survival. A single off-target effect could have devastating -- even fatal -- consequences.

It is possible to screen a genome to identify and minimize potential off-target effects. In addition, different methods of delivery might reduce some of the dangers associated with the technology.Alnylam Pharmaceuticals' announcement noted that all of its other developmental RNAi drugs are administered in doses "12 times to 30 times" lower than revusiran, which is due to different methods of drug delivery. While it's not yet possible to draw conclusions on the exact causes of the drug's failure, the unfolding events highlight major risks for R&D projects at Monsanto and Intrexon.

RNAi pitfalls extend beyond biopharma

The use of RNAi in the lab to engineer enhanced seed varieties -- soybeans and apples -- won't be affected. The research happens in a controlled environment and has no potential to impact human health, as RNAi isn't in the final product. In the worst-case scenario, scientists will end up with some yummy apples, grown in a greenhouse, that don't have the desired traits. (Besides, this application of RNAi could very soon be completely replaced with new gene-editing technologies such as CRISPR.)

But both Monsanto and Intrexon are looking to exploit the potential of RNAi technology in the field. It's difficult enough to minimize off-target effects and find the optimal delivery mechanism within the human body. Not to downplay the complexity of biology and human physiology, but these obstacles become orders of magnitude more difficult when the technology is released into the environment.

Monsanto is developing a new platform called BioDirect that includes RNAi sprays that it hopes will target specific agricultural pests, from weeds to viruses to insects. It even has a product in development targeting mites and viruses responsible for harassing honeybees. Intrexon is researching similar applications as part of Intrexon Crop Protection, its pest-and-disease-control initiative, although it's hoping to deliver doses of RNAi encapsulated in food-grade bacteria.

In theory, RNAi represents a better approach to fighting agricultural pests than the current available solutions do. While pesticides can sometimes indiscriminately eliminate pests and other organisms caught in the crossfire, a highly specific RNAi product could eliminate only pests and have no effect on other organisms. Can these companies be sure that RNAi doesn't accidentally target one of the other hundreds of organisms in the field? It will be difficult to answer this question with absolute certainty, and the risks might outweigh the rewards.

What does it mean for investors?

Unlike Alnylam Pharmaceuticals or other biopharma companies, Monsanto and Intrexon do not have their fates tied to the success or failure of RNAi products. Intrexon seems well-positioned with other pest-fighting technologies, such as its self-limiting insect platform, which truly is specific to single organisms and has no potential for off-target effects.

The stakes may be a higher for Monsanto, which looks more appealing to its potential acquirer Bayer because of its BioDirect platform. It seems unlikely to derail the acquisition -- regulatory approvals are much-larger obstacles -- but the company is projecting multibillion-dollar potential for its broader Biologicals platform, which includes BioDirect. If the acquisition fails, then Monsanto investors may be more at risk should RNAi R&D be abandoned.

It's worth noting that RNAi products for open-field agriculture have yet to leave the pipeline, and may never be approved by regulators. Given the potential for unknown off-target effects in the environment, it may be best for the technology to remain in the lab -- for the sake of both the environment and investors.

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Maxx Chatskohas no position in any stocks mentioned.Follow him on Twitterto keep up with developments in the engineered biology field.

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