Arrowhead Pharmaceuticals Inc (NASDAQ: ARWR) is having a relatively strong start to the trading session in the pre-market hours this morning. Interestingly the stock soared in the pre-market yesterday, before tanking and closing the day deep in the red. Nonetheless, I believe that the declines are nothing more than a buying opportunity and that the stock will see tremendous gains ahead. Today, we’ll talk about:
- Why I believe ARWR represents a strong opportunity;
- what we’re seeing from the stock; and
- what we’ll be watching for ahead.
Why ARWR Represents A Strong Opportunity
As mentioned above, Arrowhead Pharmaceuticals climbed in the pre-market yesterday, only to fall deep into the red before the closing bell. However, when you look at why the stock ran up before the opening bell, it becomes clear why I’m so excited about the opportunity here.
Yesterday morning, ARWR announced that it had entered into a license and collaboration agreement with Jannsen Pharmaceuticlas, a subsidiary of Johnson & Johnson. The deal was anything but peanuts too. In fact, the transactions under the agreements come with a value of more than $3.7 billion.
Under the terms of the agreement, ARWR will receive an upfront payment in the amount of $175 million. That payment is to be followed up with a $75 million equity investment at a price of $23.00 per share, representing an incredible premium.
Moving ofrward, the company is eligible to receive up to $1.6 billion in milestone payments for the HBV license agreement, $50 million of which is tied to the current Phase 2 study. The company is also eligible to receive about $1.9 billion in options and milestone payments for a collaboration related to three potential additional targets under the agreement. On top of that, the company is eligible to receive tiered royalties up to the mid-teens on product sales should the company receive regulatory approval. In a statement, Christopher Anzalone, Ph.D., President and CEO at ARWR, had the following to offer:
This agreement represents an important next step for ARO-HBV. Arrowhead has established a leadership position in the field over the past several years, and Janssen’s proven development capabilities, global commercial reach, and commitment to HBV make it the ideal partner to potentially accelerate our goal of bringing a functional cure to patients with chronic HBV… The collaboration also represents further validation of the TRiM™ platform and provides an important opportunity to create up to three additional novel medicines by leveraging Arrowhead’s speed and expertise in RNAi drug discovery and Janssen’s clinical development and commercial capabilities.
Considering the news, it’s hard to come to grips with why the stock fell more than 17% by the closing bell yesterday. After all, not only will this transaction drive substantial funding for the company, it also has the potential to drive substantial long-term revenue, with a commercialization partner like JNJ at the helm. Not to mention the equity investment at a serious premium. Nonetheless, don’t get discouraged here, I believe that the stock will run.
What We’re Seeing From The Stock
One of the first lessons that we learn when we start to dig into the market is that the news leads to moves. In the case of AMRN, the news was overwhelmingly positive. While investors had an adverse reaction to the news, I’m expecting a strong recovery followed by more gains in the near and mid term. Currently (7:31), ARWR is trading at $15.33 per share after a gain of $15.80 per share or 0.47% thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on ARWR. In particular, we’re interested in following the licensing and collaboration agreement between the company and Johnson & Johnson as we believe that the deal will push the stock to the next level. Nonetheless, we’ll continue to keep a close eye on the news and bring it to you as it breaks!
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