Alnylam's 70x PE ratio prices in perfection for a biotech that swung from -$405M to +$186M quarterly earnings.
Applying this framework, Alnylam transformed from bleeding cash to generating profits, but the market has priced this biotech miracle at 70x earnings with no margin of safety.
If you bought this entire business today, would what it earns justify what you paid?
This framework suggests paying 70x earnings for any business requires extraordinary conviction. While the DCF model indicates undervaluation, the earnings yield of 0.35% means an owner would wait 286 years to recoup their investment at current earnings.
Are the earnings predictable and growing steadily?
This framework values predictable earnings above all else. Alnylam shows extreme volatility - the antithesis of what this lens seeks. While the growth trajectory is impressive, the wild swings make future earnings nearly impossible to predict with confidence.
Does this business have a durable competitive advantage?
Applying this lens reveals strong pricing power through 75%+ gross margins and specialized therapeutics creating switching costs. However, concentration in just two products raises durability questions - a moat built on two bridges is vulnerable.
How much cash does an owner actually get to keep?
This framework focuses on cash an owner can extract. While Alnylam generates positive cash flow, the massive R&D requirements mean virtually nothing flows to owners - every dollar earned gets reinvested in maintaining the innovation edge.
Applying this framework to Alnylam reveals a business that violates several core principles: earnings are wildly unpredictable, the price offers no margin of safety at 70x earnings, and cash generation gets consumed by R&D rather than flowing to owners. While the company achieved a remarkable turnaround and management appears aligned, this framework suggests waiting for a price that makes sense for a permanent owner. At what price would you buy a biotech that swings from -$405M to +$186M quarterly earnings?
This analysis applies Warren Buffett's published investment framework to publicly available financial data. It is not authored by, endorsed by, or affiliated with Warren Buffett. Educational purposes only. Not financial advice.