Arrowhead Pharmaceuticals, Inc. (ARWR) had a massive run in 2019 that has led to some exaggerated selling and profit taking in 2020 as coronavirus fears hit almost all areas of the market. At levels far below where it should be trading, short sellers have capitalized by closing their positions as short interest has declined to new 52-week lows. Arrowhead could see a big rebound in mid to late 2020 as coronavirus fears hopefully start to abate and potential Janssen (a division of Johnson & Johnson (JNJ) and Amgen Inc. (AMGN) milestone payments make headlines as Arrowhead’s TRiM platform continues to impress. Arrowhead’s recent capital raise near the stock highs, should contribute to future shareholder value with pipeline expansion across different cell types.
Short interest in Arrowhead has now plunged for 9 straight reporting periods as short interest in the stock is now at about half the levels it was approximately a year ago according to nasdaq.com. With a float of about 98.84 million shares, currently about ~8.8% of those shares are still shorted as Arrowhead’s share price has tumbled over 60% from end of year 2019 highs along with the market in general.
This rapid and sustained loss in shareholder value is a little easier to see and understand when you put it into perspective. Arrowhead saw massive ~400%+ gains over 2019 as the general market had a very memorable year as well.
Little has changed since 2019 to change Arrowheads narrative except its most recent ~$266.8M capital raise at the end of 2019 which helped kill its sensational run. Since then, coronavirus has become a large and looming threat across the globe allowing shareholders a good reason to sell stocks that have performed superbly over the last year. This rush of selling on fear and profit taking has allowed short sellers the opportunity to close out positions as massive volume allows for easy exits amidst massive market moves.
This should leave the company in a good position for potential bounce back trades before or by the back half of 2020 if global coronavirus fears do start to ebb. Arrowhead continues to successfully progress its lead candidates, including its recently announced Phase 1/2 clinical trial for ARO-HSD for the treatment of nonalcoholic steatohepatitis NASH. Its lead wholly owned candidate ARO-AAT has a fast-track FDA designation and dosed its first open-label Phase 2 patient at the end of 2019 as its Phase 2/3 pivotal trial for the candidate first dosed in August of 2019 with a scheduled completion date of May of 2023.
According to Arrowhead’s latest conference call, the company’s TRiM platform could have proof-of-concept of target gene silencing in not only the lungs, but solid tumors as well, before eventually moving into skeletal muscle as well. Pretty impressive for a company known mainly as a liver company. Being able to target four different cell types by the end of 2020 means that the company can cherry pick the most lucrative opportunities across each cell type instead of being limited to one or two opportunities as many other biotechs are.
Diversifying and expanding its pipeline of products means that the company will need more money than the $~232M it just raised to end 2019. This is where the company’s partnerships come in as it signed on with Amgen in September of 2016 for a ~$673.5M collaboration agreement. Arrowhead received its first $10M milestone payment in August of 2018 for AMG 890, formerly ARO-LPA. Recent Amgen presentations suggest that Arrowhead could be looking at another milestone payment as soon as the first half of 2020 as Amgen is looking to advance AMG 890 into Phase 2 trials.
Slide from Amgen’s Q4, 2019 Earnings Presentation
Additional milestone payments usually grow in size, compared to previous milestones, and should help to further de-risk the company’s TRiM platform as Amgen, Arrowhead, and Janssen all continue to have remarkable success with their individual TRiM data readouts.
Janssen’s $3.7B licensing and collaboration agreement with Arrowhead in October of 2018 completely changed the Arrowhead narrative. An agreement with that level of potential milestones attached to it for a company sporting a current market cap of ~$2.5B shows clearly the upside that Arrowhead has in the coming years. Arrowhead has already nabbed a $25M milestone from Johnson & Johnson in April of 2019 on JNJ-3989’s, formerly ARO-HBV, advancement. Arrowhead earned another $25M milestone with the initiation of Janssen’s Reef-1 Phase 2b combination study in August of 2019. With ~450 subjects in the study, and a primary completion date scheduled for January 2021, continued promising data results could single-handedly propel Arrowhead to new highs just considering the milestone and royalty payments Arrowhead could earn if Janssen brings the drug to commercialization. With the World Health Organization citing that hepatitis B is a global public health problem affecting ~292 million people worldwide, a home run for this candidate would be a big deal not only for Arrowhead, but for giant Pharmaceutical company Johnson & Johnson as well.
With a balance sheet sporting ~$528M at the end of 2019, and a current quarterly operating cost of ~$34M, Arrowhead has more than enough cash to weather the coronavirus storm without the need for an additional capital raise anytime in the near future. This should be more than enough cash to expand its TRiM platform across 4 different cell types as it cherry picks the most lucrative opportunities in each category. Short interest in the stock is looking like it is approaching a bottom as the stock is now an incredible value to where it was just a few months ago. I think it is very wise for bearish investors to continue to close out their accounts sooner rather than later as a rebound in Arrowhead stock is just a matter of time as its data and future potential are hard to argue against. I continue to be long Arrowhead, and have recently added about 25% more shares to my position. Best of luck to all.
Disclosure: I am/we are long ARWR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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