Arrowhead Pharmaceuticals (NASDAQ:ARWR)

On Monday, Arrowhead Pharmaceuticals stock closed down by 1.58%, even though it announced that it had completely finished the deal with Amgen. The deal between Arrowhead and Amgen had finally closed today. Investors weren't too enthusiastic, as the stock closed lower instead of heading higher. This news is definitely good news, and the stock should have reacted appropriately to this type of news. Typically, when a biotechnology company posts a final deal with a big pharma company, its stock soars higher. In this case it was totally different, but there is a good reason why. Not too long ago, Arrowhead received a clinical hold from the FDA for its Heparc-2004 study dealing with Hepatitis B. This caused a sudden drop in the share price, so the news posted today, while good, was not enough to overcome the clinical hold for the trial.

ARWR Deal With Amgen

The deal between ARWR and Amgen was established back at the end of September of this year. The deal established was that Arrowhead, pending certain milestones over time, could obtain up to $674 million in cash.  The way the deal worked out was that Amgen received an upfront payment of $55.6 million, and the potential to earn the other $617 million. The reason for Amgen doing this deal was to obtain the early pre-clincial work in the cardiovascular space. ARWR had a pre-clinical program in this space, and that was something which Amgen was greatly interested in. The upfront payment that ARWR got is huge. It can use this cash to develop other drug candidates in the pipeline. This does two different things. For one, it advances other drugs into the clinic to increase the stock price and shareholder value. Secondly, it allows additional partnership opportunities to unfold. This will greatly continue to increase the value of the company itself. The initial drug candidate is known as ARC-LPA and showed a 98% knockdown in mice with a single injection. Amgen must have been impressed enough to make the decision to create this partnership.

FDA Clinical Hold

As noted before, the FDA had placed a clinical hold on Arrowhead's hepatitis B trial program. This action was completed a few weeks ago on November 9, and the stock has suffered because of it since. The clinical hold is on Heparc-2004 which is treating 12 patients with the Hepatitis B virus. The trial has been placed on hold and is not recruiting patients for the moment. The reason for the hold was a problem observed in the nonclinical toxicology study being done with non-human primates. More specifically, the FDA wants answers to questions surrounding the company's EX1 delivery technology. That technology is being used to deliver targets to the liver intravenously (through a vein).

Looking Forward

The good news about the clinical hold is that it deals with a higher dose in a non-human clinical study. That means that ARWR should easily answer the FDA's questions to get the clinical hold lifted quickly. In the meantime the stock will continue to suffer for it, so investors should be cautious in the short term. Long term, though, this clinical hold should eventually be dealt with, and that will be a huge positive. The deal with Amgen is what should be driving the company forward, because it received a lot of cash upfront. As noted before it can do many different things with this cash, therefore it should help create shareholder value over time. The stock currently boasts a $300M market cap, which is pretty good considering the pipeline it has, although it doesn't account for the potential $617 million extra in cash it could obtain. The thing is that as investors realize the true value of ARWR, the stock should start to climb again.

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