Arrowhead Back To Drawing Board After Monkey Shock

Deaths in primate studies, and the laboratory work necessary to rule out risks to humans, have scuppered Arrowhead’s (NASDAQ:ARWR) clinical-stage pipeline. The RNAi specialist has cancelled work on its hepatitis B lead, ARC-520, and two other projects using its intravenous EX1 delivery vehicle.

Shares plunged 60% today, taking its market capitalization to cash levels, as the California-based group fired 30% of its workforce and rebooted itself on preclinical projects delivered subcutaneously and acting outside liver tissue. Arrowhead was fortunate to have signed Amgen (NASDAQ:AMGN) on as a partner on its cardiovascular programs in September – the $55m raised with that deal will help extend its cash runway to 2019.

Shoe dropping

The decision to cancel work on ARC-520, ARC-521 and ARC-AAT was foreshadowed by the clinical hold on the ARC-520 Heparc-2004 study imposed earlier this month (No way to bury Arrowhead and Bioinvent’s bad news, November 9, 2016).

Arrowhead executives said subsequent discussions with FDA officials and with toxicology efforts suggested that it would take 18 months to determine the cause of mortality in the non-human studies of EX1 – and the risk of inconclusive or even negative findings was too high to justify continuing to investigate whether and how the EX1 platform posed a risk.

“Our hypothesis is that they were caused by dose-related, drug-induced toxicity exacerbated by extensive study-related handling procedures and infusion reactions for which the animals are not pre-treated, unlike patients and volunteers in our clinical studies who receive an oral antihistamine prior to treatment,” chief executive Chris Anzalone said in a conference call with investors.

“Given time, we could test these hypotheses and possibly provide comfort to regulators, but risk to the company would still be high.”

Cash pile

The net present value of ARC-520 and ARC-AAT, derived from sellside consensus forecasts, was $826m before announcement of their termination. This was well above even Arrowhead's market capitalization even before the announcement of Heparc’s halt, suggesting that investors had a more guarded view of their promise. Their value, of course, has now fallen to zero, and none is ascribed to any of the preclinical assets based on today’s market plunge.

Still standing: Arrowhead's preclinical pipeline

Project

Class

Indication

ARC-F12

Factor XII inhibitor

Hereditary angioedema and thromboembolic disorders

ARC-HIF2

HIF-2 alpha RNAi therapeutic

Clear cell renal cell carcinoma

ARC-LPA*

Apolipoprotein A inhibitor

Atherosclerosis

ARC-AMG1*

Undisclosed

Undisclosed cardiovascular

*Amgen partnered.

Click to enlarge
Click to enlarge

A combination of the Amgen deal, which involved a $35m up-front fee and a $21.5m equity investment, and a $45m private offering has topped up Arrowhead’s cash pile to an estimated $100m. The group is likely to need a big chunk of that to get to some milestones on the Amgen-partnered projects, the lipid-lowering agent ARC-LPA and ARC-AMG1, as well as proprietary programs ARC-F12 and ARC-HIF2, for hereditary angioedema and clear cell renal cell carcinoma respectively.

All is not necessarily lost, and it could be noted that Arrowhead’s first rise to prominence came on preclinical data (EP Vantage interview – Arrowhead looks to evolve beyond the chimp, November 1, 2013). However, that was as the biotech boom was just getting started – it would be surprising to see a similar response in the more circumspect post-boom milieu.

Editor's Note: This article covers one or more stocks 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.