Arrowhead: A Functional Cure For The Hepatitis B Virus

(Editor’s Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.)

Executive summary:

  • With current share price increase, the technicals for Arrowhead are bullish for an even greater move upwards.
  • Additional buying by big funds and money managers may take the share price higher in the short term.
  • Arrowhead may be the first biotech to provide a functional cure for the hepatitis B virus with their DPC technology.


There is one biotech company making a huge splash in the RNAi sector, and that company is known as Arrowhead Research Corp (NASDAQ:ARWR). Arrowhead is developing proprietary RNAi compounds against a variety of diseases. The company is headquartered in Pasadena California, and hosts 50 employees.


Source: Company website.

The company is in development of a couple of clinical compounds, and is considered to have its main technological component in the RNAi -- RNA interference -- space. Despite that, Arrowhead has developed additional compounds in the pipeline to minimize investor risk. As seen in the graphic above Arrowhead has split its research into three distinct technological areas.

Three Technological Opportunities

  1. RNA Interference
  2. Homing Peptides
  3. Cyclosert

RNA Interference

RNA interference or RNAi is the ability for mRNA -- messenger RNA --molecules to be down regulated to stop the process of proteins being created. This is because diseases make proteins to achieve their cellular functions so RNAi stops or inhibits this process from taking place. As I have touched up in a previous Seeking Alpha article with another RNAi biotechnology company known as Tekmira Pharmaceuticals (TKMR), the majority of current RNAi therapeutics achieve cellular uptake of RNAi oligonucleotides using what is known as a "delivery vehicle." There is only one RNAi biotechnology company that doesn't have the need for use for an RNAi delivery vehicle, and that company is known as Rxi Pharmaceuticals (NASDAQ:RXII) which has tremendous potential. Arrowhead though has developed its own delivery system with RNAi known as a DPC or Dynamic Polyconjugate system. What makes the DPC delivery system unique is the fact that it mimics in certain ways nature's nanoparticle developments known as viruses. Arrowhead took the approach of creating this type of delivery system for a couple of reasons:

  1. Viruses are excellent in finding the targeted cell in question, and can easily unload the payload into the proper target. This allows for increased uptake by the cell.
  2. Viruses are smaller than other nanoparticles allowing for increased cellular uptake with far more minimal risks to the body.
  3. The negative charge on the surface of the virus allow them to be excellent nanopoarticle carriers to protect the siRNA molecule being sent to the targeted cell in question. This is because negatively charged cells are known for being unbreakable by cellular components. The DPC mimics this to send the molecule safely through the human body without releasing any toxicity of the compound.
  4. The ability for viruses to be able to have a specific receptor that can easily attach to the targeted cell's proper receptor port.

How the DPC technology works can be explained in a couple of steps that is needed to achieve proper cellular RNAi uptake into the targeted cell in question. For starters the DPC -- small nanoparticle in question -- is derived of a polymer shield that has ligands attached to each end of the compound. This DPC acts as the delivery vehicle of the siRNA molecule that it is diffused with by a disulfide bond. The ligands that are attached at each end are responsible for guiding the DPC along with the siRNA molecule to the proper targeted cell. Once the DPC in question reaches the targeted location it penetrates the cell, and enters into the cell's cytoplasm. Inside the cell's cytoplasm it reaches into a compartment known as the endosome. The reason why it is important for the DPC/siRNA complex to reach inside the endosome is for one important reason. This reason is because the endosome is able to break down the polymer shield of the DPC allowing the siRNA payload to be unleashed inside the cell. The releasing of the siRNA molecule then allows for the gene expression knockdown of the disease in question. As you can see, this is an excellent delivery vehicle for Arrowhead because the polymer shield protects the siRNA payload so it can reach its proper target without harming the patient's body in the process. As I mentioned above Tekmira has its LNP -- lipid nanoparticle -- delivery system, and each delivery system has its advantages/disadvantages. One key advantage though for DPCs compared to LNPs is the fact that DPCs have targeting ligands. Targeting ligands have not yet been able to be incorporated into other RNAi lipid nanoparticle delivery systems. These targeting ligands are important to guide the siRNA to the proper targeted cell to produce the maximum efficacy possible. Alnylam (NASDAQ:ALNY), and Arrowhead came to a collaboration agreement that was well suited for both parties in question. Arrowhead received from Alnylam property rights to use an RNAi therapeutic for hepatitis B. In exchange for this RNAi patent Alnylam would be able to use the DPC delivery system for any undisclosed components of its 5x15 pipeline program -- in essence have five late stage programs by 2015. This was a smart move by Arrowhead because their lead compound for hepatitis B can be worth billions of dollars if it is ultimately approved on the market. At the same time Alnylam knows that it will receive royalty payments, and milestone payments for the given hepatitis B program. The flip side is that whatever target Alnylam chooses to use the DPC delivery platform for it will also have to pay royalty fees as well to Arrowhead. At the end of the day this collaboration agreement was good for both parties, and will help to signify a revolution in the RNAi biotech space.

Homing Peptides

To limit the risk of the pipeline there were multiple compounds developed. The second technology Arrowhead has created are known as homing peptides. They are specialized human-derived peptide sequences that only target specific tissues of the human body. This peptide does so in a fashion that leaves the healthy tissue alone creating substantial efficacy while limiting toxicity.


Source: Company Website.

As can be seen in the picture above Arrowhead has been able to create a platform as novel peptide sequences in their library portfolio, or various cell surface target receptors. This will allow the company to keep a portion of the homing peptides portfolio in clinical house, and to license out certain cell surface target receptors. The importance of the above graphic is the ability for the company to take PDCs -- Peptide Drug Conjugates -- and link the homing sequence to a toxin that induces cell death. There is one key thing to take note of with the toxin that induces cell death. Typically a toxin on any healthy portion of tissue does not bode well for the patient due to toxicity, but that is where the peptide receptor is able to attach to the proper receptor of choice -- targeted receptor -- leaving the healthy tissue alone. If we think about this clearly this mechanism of targeting specific cellular tissue while leaving healthy tissue alone can also be closely matched to antibody drug conjugates or ADC. One such company working with Antibody Drug Conjugates is Seattle Genetics (NASDAQ:SGEN). An ADC is similar to a peptide in that it links a toxic agent by a linker, and is directed toward the target cell to release the payload when it is internalized. Internalization occurs when the PDC or ADC is engulfed by the targeted cell. There is one key difference though that investors should realize, and that is that PDCs have two very big advantages over ADCs. One advantage is the speed in which the compound can be produced. PDC can be produced quickly because of the less than complex form needed to produce them. The second advantage is that simpler form creates the ability to produce the compounds at a more efficient price point.


Source: Company website.

In the above graphic we can see the various targets that have been created using the homing peptide platform. One such example is the first compound known as BMTP-11 which targets the receptor known as IL 11-R. As shown in the previous graphic then the one shown directly above under the "receptors" box you can see that it links down to tumor targets, and mAbs -- monoclonal antibodies for ADC. The BMTP-11 has a lead indication for Metastatic Prostate Cancer, and has currently completed a Phase 1 trial that has been submitted in for consideration of publication. Whether Arrowhead is proficient in ADC or monoclonal antibodies remains to be seen, but they are able to out license this opportunity to biotechnology companies that specialize in this particular field. That is the power of the homing peptides technology platform, and we think that it will serve Arrowhead very well in the long term. One good example of this homing peptides platform is when Arrowhead entered into a Collaboration agreement with Shire PLC (NASDAQ:SHPG). Under this agreement Arrowhead will receive research funding to perform the trials using its homing peptide platform, but will do so using Shire's therapeutic payloads. Arrowhead is also due for $32.8 million dollars in regulatory, development, and commercialization milestone payments. This good news was expressed in a quote from the CEO of Arrowhead:

"Our library of over 42,000 unique targeting peptide sequences can potentially be used to deliver therapeutics to more than 30 tissue types while avoiding non-specific uptake."

The quote above is the CEO talking about how well the homing peptide platform will mesh together with Shire's payload. This is because the homing peptide platform is proficient in delivering therapeutics to the proper tissue of choice dependent upon what rare disease is being treated. Arrowhead's research funding will be to develop the peptide of choice for a specific tissue, and then will bring the option to Shire to develop and commercialize the product fully. In other words Arrowhead will be responsible for the initial building of the product, and pass it on to Shire if the company is willing to advance it further.


Cyclosert has been in clinical testing for quite some time, and is a delivery platform for small molecules. The Cyclosert platform is a linear cyclodextrin polymer that is attached to a nanoparticle of choice. So Arrowhead's Cyclosert platform is linked with Cerulean Pharma's nanopharmaceutical to deliver a payload to a particular type of tumor. Cerulean's nanopharmaceutical compound targets, and enters tumors through blood vessel pores for its mechanism of action. The compound both companies are developing is known as CRLX-101 that is composed of two substances. These two substances are a dual inhibitor topoisomerase 1, and hypoxia-inducible factor-1 alpha -- also known as HIF-1a. What investors should note about this clinical compound is that it is synergistic with many other toxic compounds. The reason for this is because CRLX-101 has an impeccable safety profile even at high concentrations. This means that coupling CRLX-101 with other anti-angiogenic inhibitors -- restrict blood vessel formation to feed tumors -- like Avastin from Roche (OTCQX:RHHBY) inhibits blood vessel growth that stops the tumor growth at its tracks. This platform is on the right track because the reason for other nanoparticles that fail to induce the HIF-1a particle is the inability to stop angiogenisis.

Lead Compound ARC-520

As mentioned above Arrowhead was able to obtain a compound for hepatitis B from the deal with Alnylam. Arrowhead is using ARC-520 to attempt to cure patients of the hepatitis b virus. Hepatitis B is an infection that occurs in the liver. There are two stages of the hepatitis B virus. The first stage is where it occurs for a short term period this is known as an acute hepatitis B infection, and lasts for about 6 months. The other stage is where the infection continues to spread throughout the body in a continuous fashion. This continual spread of the hepatitis b virus is known as a chronic infection. Many people live with the virus, and don't even know they have it. The reason for getting it treated is to prevent further illness. The chronic hepatitis B virus can cause liver failure, cancer, and cirhossis -- permanent scarring of the liver. Currently there are vaccines to block the virus before you get it, but no current therapies address the problem after a patient has been already infected with the virus. So Arrowhead has the ability to capitalize on the strength of RNAi technology, and apply it to a huge unmet medical need worldwide. It is estimated that there are 350 million patients worldwide with a chronic hepatitis B infection. What makes this virus an unmet medical need is the limited treatment options, and the fact that this virus results in 600,000 deaths or more per year according to the WHO -- World Health Organization. Current therapies out there are interferon, and NUCs -- Nucleoside analogues. Interferon has very many side effects that makes it horrendous to give to patients. On the flip side Nucleoside analogues can block a gene in hepatitis B known as Viremia -- which is responsible for producing more copies of the virus -- but can't cure it once a patient is already infected. The main goal for Arrowhead is produce a functional cure for hepatitis b using RNAi which is both safe and efficacious.

In a preclinical study Arrowhead demonstrated the use of the DPC technology by using a peptide formed with amino acids/liver targeted molecule, and incorporating it with a cholesterol-conjugated siRNA -- small interfering RNA -- known as chol-siRNA. The results of the preclinical study were published in a medical journal known as "Molecular Therapy." The proof of concept results for this study showed a gene expression knockdown of the hepatitis B disease by greater than 99%. This gene knockdown of 99% is amazing not only because of the massive down regulation of the genes, but the fact that it achieved its status with only a single injection. This establishes the protocol for Arrowhead to achieve a functional cure of the virus, and why the share price continues to rise each passing day. Arrowhead later ran a Phase 1 study in human patients, but the primary purpose was to establish safety parameters. In other words the main objective was to establish the highest maximum dose possible to achieve cure of the hepatitis B virus, without hurting the patient in the process. The results of the Phase 1 showed no serious adverse events. There were 2 patients in the highest dose group tested -- 2mg/kg with ARC-520-- that had mild lightheadedness, but nothing as severe as other toxic compounds like interferon. Based off of pre-clinical proof of concept results along with positive Phase 1 results Arrowhead had submitted an application to begin Phase 2a testing of ARC-520 for patients with hepatitis B. Arrowhead will run the Phase 2a trial as a double-blind, placebo-controlled, dose escalation study. The double-blind nature indicates that patients nor clinical doctors will know who receives placebo, and who receives ARC-520. The placebo control will serve as a test to the efficacy of ARC-520, and will determine whether it is suitable to continue pouring developmental funds to bring the compound to the FDA for approval. A dose-escalation study will gradually increase doses of ARC-520 to see the highest dose that can be possibly tested without serious adverse events. Entecavir -- also known as Baraclude and marketed by Bristol-Myers Squibb (NYSE:BMY) -- will be the placebo control to be tested with ARC-520. The Phase 2a protocol was submitted to Hong Kong's Department Of Health. Such a site was chosen by Arrowhead, because of the prevalence of the hepatitis b virus in that regional area. In other words it will make trial enrollment for the study a lot quicker than if they chose the U.S. region.

Catalysts for ARC-520

  1. Run initial single dose efficacy study on Chronic HBV patients on RT inhibitor therapy in 2014
  2. Planned dosing for ARC-520 to begin Q1 2014
  3. Monitor Phase 2a study for curative intent of the hepatitis b virus 2014 -- determine if ARC-520 results in a functional cure of the hepatitis b virus


According to the 10q-SEC filing Arrohwead has cash and cash equivalents totaling $85.5 million dollars as of December 31, 2013. Part of the cash increase was due to the company performing a sale of its equities generating $60 million dollars worth of funds. These funds will be used to run the current clinical operations of the company, and to advance the pipeline forward. With the current cash on hand management expects to be able to fund the company for only the next 12 months. This means that ultimately this year there is the possible risk for dilution to keep the operations going. As mentioned above Arrowhead is eligible to also receive some milestone payments contingent on Alnylam's ability to advance clinical targets using the DPC delivery technology. Such milestone payments are not guaranteed therefore investors should expect dilution this year at least. The DPC technology is advancing nicely and is strong therefore there is a possibility that Arrowhead may be able to find further financing with other partnerships. Such a move would alleviate the risk of further dilution, and reduce the burden on shareholders.


There are several risks when considering about investing in Arrowhead Research Corp:

  1. Despite positive preclinical, and Phase 1 results it is possible that Phase 2 may yield results not up to par with the placebo compound
  2. There is no guarantee that the Hong Kong Department of Health will allow Arrowhead to begin its Phase 2a trial of ARC-520
  3. The DPC may produce efficacious results, and it may not in such case the DPC platform will have to reevaluated for further use
  4. Current Maximum Tolerated dose -- MTD -- is 2 mg/kg without serious adverse events. It may not be possible to go to higher doses without creating toxic adverse events
  5. Even upon approval for ARC-520 there may be other hepatitis B competitors, so there is no guarantee of substantial revenue generation
  6. Even with the RNAi delivery system crashing, Arrowhead has two additional backup technology systems which may or may not be efficacious enough to keep the company running
  7. Failure to obtain funds through partnerships and research collaborations would put investors at risk of additional dilution


Arrowhead has shown some amazing results with the 99% gene knockdown in non-human primates. The ability to achieve a knockdown of that caliber while having such impeccable reduced safety parameters can mean a possible functional cure of the hepatitis B virus. The reason for the run up can be attributed to the demand of a cure for the hepatitis B virus which has limited treatment options. RNAi technology is making a breakthrough in medicine recently, and we believe that Arrowhead's DPC technology which mimics viruses in a way can revolutionize the RNAi space. Even though the stock has surged 375% in the last 6 months, we believe that with even more positive initial indications in the Phase 2a trial for ARC-520 the share price can rise further. We believe it is possible to establish a doubling of the current $753 million market cap too $1.5 billion or more in valuation. The share price can double from its current price contingent on the basis that Arrowhead can show that its technology obtains a gene knockdown of 99% in Phase 2 studies. This would prove the company of being able to have a functional cure for the hepatitis B virus, and as such the share price should rise further. A $1.5 billion valuation would give the company a share price of $38 per share. The $1.5 billion valuation would be ideal for the amount of future revenue generated on sales for ARC-520 along with the other technologies in the pipeline. We say this because Merck (NYSE:MRK) generates sales of $800 million dollars per year for its hepatitis B vaccine. So with the approval for ARC-520 along with the other technologies in the pipeline we have established a valuation of $1.5 billion in market cap. We feel that Arrowhead is a great long term name to own in the RNAi Sector.

Disclosure: I am long RXII. 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.