Will Alnylam be the next target for a big tech buyout?

It's the classic biotechnology story.

One day, you're a Kendall Square start-up with no products and an unproven idea. The next day, one of the world's largest pharmaceutical companies buys your sole competitor for more than $1 billion -- and suddenly everyone is wondering if you're the next big thing.

That's what happened to local biotech firm Alnylam Pharmaceuticals Inc. last week. The four-year-old company's stock has been trading at an all-time high since last Monday, when drug giant Merck & Co. said it would buy rival Sirna Therapeutics Inc. for $1.1 billion in cash.

The deal was the latest in a string of big-ticket biotech buyouts, in which large companies have swooped in and acquired tiny firms with highly specialized technologies. This year, Merck spent $400 million for GlycoFi Inc. , a private New Hampshire company trying to grow drugs in yeast. Amgen Inc. bought Avidia Inc., a maker of unusual proteins, last month for $290 million .

But the $1.1 billion price tag of last week's deal dwarfed those numbers, and brought a laser focus on a Cambridge company whose first potential drug has barely entered human tests. Analysts are now wondering whether Alnylam will be the next target of a billion-dollar buyout -- or whether it just became an also-ran in a race it has long appeared to be winning.

"My first reaction was wow, this is real validation," said David Witzke , an analyst who follows the company for Banc of America Securities LLC .

But others are more skeptical, pointing out that Merck had a longstanding research-and-development deal with Alnylam, and then chose to spend far more money acquiring its rival.

Alnylam and Sirna are the two leaders in the race to make drugs based on RNA interference, the idea that small strands of genetic material can be custom-built to block specific genes from working. Though discovered only in the late 1990s, RNA interference, or RNAi, has quickly become one of the hottest concepts in biology. It was named Science magazine's "breakthrough of the year" in 2002, and just last month this year was crowned with the biggest vindication in science: Its discoverers won the Nobel Prize in medicine.

RNAi has already proven a valuable laboratory tool, but the biggest financial prize would be turning it directly into a drug. To capitalize on that promise, Alnylam was incorporated in 2002 by some of the biggest names in RNAi research, including Phillip Sharp of MIT and Phillip Zamore of the University of Massachusetts -- enough science star power to be dubbed a "Hollywood start-up" by one of the company's financial backers.

They began gathering patents and quickly amassed what the company says is the most powerful arsenal of intellectual property associated with potential RNAi drugs. Several healthcare giants -- Merck, Medtronic Inc. , Novartis AG , and Biogen Idec Inc. -- signed deals to get access to its research.

But the whole idea has been shadowed by questions. Specifically, can anyone really make a drug out of such a big, complicated molecule?

"The Nobel Prize is about science," said biotechnology analyst Pamela Bassett of Cantor Fitzgerald & Co. "This is about being able to translate the science into a usable, functional technology."

While Alnylam was building up its patent portfolio, a rival across the country was gaining steam. Sirna was born from a failing Colorado biotech company called Ribozyme Pharmaceuticals Inc. Though it didn't have the star-studded scientific cast of Alnylam, it did have something else: a group of people who had been working for years to turn complex, RNA-like molecules into drugs. Bassett and others see this as a significant advantage.

Sirna and Alnylam are now running early-stage human tests of one drug each. With little data released publicly, the clearest way for investors to value a company is to see what other firms would pay for it. When news broke last Monday that Merck had agreed to a $1.1 billion price for Sirna, Alnylam's stock promptly jumped 25 percent, boosting its market value by more than $100 million overnight. But some worried about what the deal meant: Had Merck checked out both rivals and bought the more attractive one?

Alnylam's chief executive, John Maraganore, wouldn't comment on whether Merck had made him an offer.

"As a matter of policy we never talk about any types of discussions that we have, but we certainly don't believe that the right way to build value at this point is to sell the company," he said.

A Merck official also declined to comment.

Both Alnylam and Merck say the existing deal between the companies, under which they could collaborate on as many as nine drugs, will continue, despite the Sirna acquisition.

One possible obstacle for a potential suitor would be Alnylam's deal with Novartis. Signed last year, it gives the Swiss drug giant between 15 and 16 percent of Alnylam's stock, and the right of first refusal on most of its drug-development projects.

Maraganore said he's focused on building Alnylam into a freestanding company, and a merger deal now, even a big one, would sell its promise short.

"There's an enormous hunger for innovative new approaches to treat disease," he said. "$1.1 billion is not a lot of money when you think of the value of creating a whole new class of drugs."

Stephen Heuser can be reached at sheuser@globe.com.