Arrowhead Pharmaceuticals (ARWR -2.92%) is a development-stage biotech company focused on RNA interference (RNAi) therapeutics and has nine candidates in clinical trials. This includes three potential biologics developed jointly with Johnson & Johnson's Janssen subsidiary. The stock had more than doubled year over year $90 apiece but fell nearly 30% off its highs after the company announced it was pausing a phase 1/2 clinical trial to study ARO-ENaC for the treatment of cystic fibrosis.
The pause came after a preliminary toxicology report revealed lung inflammation in rats after treatment. What's more, recent phase 1 interim data for ARO-HIF2 to treat clear cell renal cell carcinoma failed to woo investors. The experimental biologic demonstrated a partial response (at least 30% reduction in tumor diameter) in just one out of 17 patients in the investigation.
Investing in emerging biotechs and their drug development is usually a high-risk, high-reward venture, so can you count on Arrowhead to succeed?
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What's the outlook?
As mentioned previously, these aren't the only pipeline candidates for the $7 billion market cap company, so there's a lot of room to recover. Two of Arrowhead's most promising phase 2 candidates are ARO-AAT and JNJ-3989. Arrowhead is developing the former with Japan-based Takeda Pharmaceutical.
In a five-patient study, ARO-AAT reduced the number of mutating proteins associated with Alpha-1 antitrypsin deficiency (AATD), a hereditary liver disease, by 77% to 97%. The disease is prevalent among 1 in every 2,500 individuals. Do not be fooled by its low prevalence -- Fortune Business Insights projects orphan drugs treating the disease will reach $2 billion in sales by 2026.
Meanwhile, when given alongside standard of care treatments, JNJ-3989 significantly reduced viral biomarkers (such as HBV RNA) in patients with hepatitis B. There are already vaccines out for hepatitis B. However, they are ineffective for individuals who already have the disease, who number over 350 million people worldwide, including 1.2 million in the U.S. It is an industry analysts project will reach $35.63 billion by 2030, representing growth of 29.41% per year from today's levels.
But the path to success is often rugged. For example, results didn't look all that great for Arrowhead's ARO-HSD, which targets nonalcoholic steatohepatitis (NASH), a type of liver inflammation caused by the buildup of fat that affects 3% to 12% of U.S. adults. Currently, no medications exist that can reverse the effect of the fat buildup. In a phase 1 study, there were no significant changes in weight or lipid parameters among patients suspected of having NASH who received ARO-HSD.
What's the verdict?
Overall, Arrowhead's potential to advance JNJ-3989 through clinical trials is alone enough to justify its valuation. Keep in mind that the company is also well funded, with no debt and over $500 million in cash on its balance sheet. Investors should consider buying the biotech stock on the dip. The company is definitely at the forefront of developing functional RNAi therapeutics.
