Seeking Alpha
Long/short equity, contrarian, special situations
Profile| Send Message|
( followers)  

Summary

  • CEO says Phase 2a topline data for Hep B candidate ARC-520 to come in Q3.
  • There are 350M-400M people infected with chronic hepatitis B (2X the Hep C market). CEO says functional cure for hepatitis B would be "transformational".
  • Bullish climate for drugs targeting diseases of the liver.

Arrowhead Research Corp. (NASDAQ:ARWR) is a biopharmaceutical company targeting RNAi therapeutics. There are multiple compounds in Arrowhead's pipeline but the highest priority compound, and the focus of this article, is ARC-520 for hepatitis B. ARC-520 is being studied as a functional cure for hepatitis B (Hep B). The compound showed great promise in pre-clinical proof of concept studies and went through a successful Phase 1 safety study to determine maximum safe dosage. This led to a Phase 2a efficacy and escalating dosing study with chronic Hep B patients in March of 2014 and completed earlier this summer. The mechanics and science of how ARC-520 works are beyond the market oriented scope of this article - for those interested in the scientific details a good start would be the pre-clinical abstract.

CEO Says Phase 2a Topline Data Out Q3

According to CEO, Dr. Christopher Anzalone, on the May 7th Q2 CC, Phase 2a topline data for ARC-520/Hep B will be released sometime in Q3 - which could mean any time between now and the end of September. Dr. Anzalone said the following:

Patient accrual has been very fast, which is encouraging and keeps us on pace to have top line result to report in the third quarter. We expect this to be in the form of a press release.

Arrowhead reports Q3 financial results after the bell 8/12/14. It would be within the expected timeframe for the ARC-520 Phase 2a topline data to be released during the Q3 CC. Intercept Pharmaceuticals (NASDAQ:ICPT) just released its topline Phase 2 data (OCA for NASH) along with its Q2 results 8/11/2014 - the stock was up over $137 in afterhours trading. If Arrowhead does report the ARC-520 Phase 2a topline data and the results are positive expect explosive action in the stock afterhours Tuesday 8/12 and during trading Wednesday 8/13.

"Transformational" Potential & "First Mover"

Between 350M and 400M people are infected with chronic Hep B - over 2X the Hep C market. Consider that Gilead Sciences' (NASDAQ:GILD) Solvadi, to cure Hep C, is on pace for $10B in revenues this year! Current chronic Hep B therapies have disruptive side effects and/or only suppress the virus, they do not offer a functional cure. Arrowhead's ARC-520 is designed and is being studied as a functional cure. On July 29th, Dr. Anzalone appeared on CNBC and had this to say regarding the prospects for ARC-520:

Hepatitis B is a tremendous unmet medical need. What we have is somewhere between 350 and 400 million people in the world that have chronic Hepatitis B infection. That's one in 20 people on the planet, and there's no cure right now.

So I think if a therapeutic is able to enable a cure or a functional cure, I think it's going to be transformational from a public health standpoint, but it's also going to create a lot of value.

In Arrowhead's Q2 CC Dr. Anzalone stated that ARC-520 could have a significant first mover advantage for Hep B:

I'm not aware of any published reports that rival our data. As such, we believe we have a powerful drug candidate and substantial first mover advantage in this large unmet medical need. We intent to retain and expand this advantage with well thought out clinical studies and good execution.

Bullish Climate For Liver Drugs

The market for drugs treating diseases of the liver such as Hep B, Hep C, and NASH is very bullish. These liver diseases affect a large swath of the population and are difficult to treat effectively and cure leading to blockbuster opportunities as new treatments and cures are developed. Multiple companies developing promising liver drug compounds have been taken out such as Merck (NYSE:MRK) buying Idenix (NASDAQ:IDIX) and Gilead buying Pharmasset (VRUS). The market is looking for the next liver disease cure like Gilead's super blockbuster Solvadi for Hep C. As mentioned above, Intercept just released its Phase 2b data for NASH (Nonalcoholic steatohepatitis) along with its Q2 financials and the stock was up over 65% in afterhours trading.

Arrowhead's consensus price target from analysts is $28.10 with Deutsche Bank at a $45 target, RBC at a $35 target, and Jefferies at a $30 target. In fact Robyn Karnauskas, the Deutsche Bank biotechnology director, said Arrowhead was a likely takeout target and added this on CNBC:

Upside 100 to 200 percent- downside 20 percent.

At a current price of $12.85 Arrowhead provides an excellent long term investment opportunity plus the imminent release of the Phase 2a topline data for ARC-520 is an excellent short-term explosive catalyst play. I am long September Arrowhead call options.

Source: Arrowhead's Hep B Phase 2a Topline Data Imminent - 'Transformational' Potential

Additional disclosure: This article is informational and intended to spur thought and discussion. This article is NOT a substitute for your own extensive due diligence and does NOT qualify as investment advice. DO NOT BUY OR SELL STOCKS BASED ON THIS ARTICLE.