Arrowhead Research Continues Its Surge After Analyst Upgrade

Source: http://www.flickr.com/photos/scruffy/

Source: http://www.flickr.com/photos/scruffy/

Although the market has had a rough patch over the past few weeks, one stuck that has not suffered is Arrowhead Research (NASDAQ:ARWR). Since January 24, when the price closed at $10.80, shares have surged by approximately 43 percent as of the time of this writing. That is extremely impressive given the fact that a lot of other biotechs were selling off at the same time. Given Arrowhead’s platform, the stock price could be a runaway train.

Arrowhead Research is a biopharmaceutical company developing targeted RNAi therapeutics. The company is leveraging its proprietary drug delivery techniques to develop targeted drugs based on the RNA interference mechanism that efficiently silence disease-causing genes. The company’s pipeline is currently focused on treating chronic hepatitis B virus, obesity, and oncology through partner-based programs.

The company reported earnings Tuesday, February 4. Despite generating a net loss per share of ($0.28), analysts still think highly of the company. In fact, one of the most revered analysts, Piper Jaffray, raised its price target on Arrowhead Research from $12 to $20. The primary reason for the upgrade was that Piper Jaffray believes that Arrowhead’s flagship candidate, ARC-520, has blockbuster potential.

ARC-520 is an RNAi-based therapeutic used in the treatment of chronic Hepatitis B. Arrowhead has licensed access to three siRNA formats and advanced chemical modifications. This access means that Arrowhead can develop the most advanced and potent therapeutics for each of its desired targets. The licenses include the following:

  • Non-exclusive license from Alnylam
  • Non-exclusive license from City of Hope Comprehensive Cancer Cancer

Arrowhead’s goal, with ARC-520, is to develop a functional cure, rather than just a treatment. In order to do this, the company began a Phase 1 study in mid-2013 and plans to follow that study with a Phase 2a trial in chronic HBV patients in Hong Kong.

So what makes ARC-520 special? Well, the current treatment options include interferon and NUCs. Interferon is hard to use because of the rough side effects associated with it. Those side effects include fatigue, headaches, myalgias, fever, arthralgias, nausea, anorexia, diarrhea, depression, irritability, insomnia, pruritus, dermatitis, alopecia, anemia, neutropenia, and dyspnea. Clearly, when there are that many side effects, there is room for improvement. The second treatment option is NUCs (nucleotide or nucleoside analogues.) NUCs are typically successful in controlling viremia (the production and release of new viral particles.) However, they typically fail at suppressing the production and release of viral proteins such as s-antigens and e-antigens.

ARC-520 functions very differently from the NUCs. The siRNAs in ARC-520 become active at the mRNA level, upstream from where nucleotide and nucleoside analogues act. In animal models of HBV infection, ARC-520 has shown the ability to knock down all HBV gene products, including proteins and other elements capable of producing viral DNA.

Due to this unique model, several prominent institutional holders have jumped aboard. The most prominent, of course, includes the Baker Brothers. As of the end of the third quarter, the Baker Brothers held 3.14 million shares in Arrowhead Research.  At the current price, that stake is worth more than $47 million.  We should be finding out about 4th quarter holdings soon and if the Baker Brothers added more shares, the share price is likely in for a big surge.

More From Wall St. Cheat Sheet:

More from The Cheat Sheet