Thursday, November 29, 2012

Arrowhead Research, Focus on RNAi Therapeutics


Arrowhead Research just announced the publication of a scientific paper detailing its fundamentally new DPC delivery approach (discussed here before).  Except for noting that this study is a proof-of-concept one only and, based on recent conference presentations, clinically more relevant formulations have been developed, I am feeling more compelled to talk about my thoughts on Arrowhead’s corporate strategy than to give you are run-down of the paper that you can also read yourself here.

A Dubious Past

When I used to think of Arrowhead, a company came to mind that was constantly chasing the latest hot area in science and technology to raise the next round of money, and never pursuing anything in great detail.  And it is great detail that is required if you really want to make a product, especially a drug.  It got worse during the economic downturn when the company claimed to be a broad RNAi platform play and did not even have a lab to show.  As Benitec is demonstrating, not having a lab while acting like a platform play means that you are wasting time while dwindling away cash resources.


The Roche Acquisition- A New Beginning?

Then suddenly, Arrowhead unexpectedly emerged with the Roche RNAi asset scalp in hand.  Overnight, the little company acquired assets from Roche on which the Big Pharma had spent ~$700M. including a vibrant research organization in Madison, Wisconsin.  Although this finally got the company that missing lab, it also seemed a huge financial gamble at a time when RNAi Therapeutics sentiment was at its bleakest (late 2011, a month before the ALN-TTR01 presentation).  How would such a small cap biotech company fund the enlarged operation?  Yes, you can buy castles in France for a token Euro, but can you actually afford to live in them?

That bet likely depended on the outcome of two issues: 1) RNAi Therapeutics sentiment had to turn around in time so as to provide upward pressure to the valuations of RNAi Therapeutics companies.  This would help Arrowhead Research raise the needed capital in a shareholder-friendly manner; 2) The DPC delivery platform needed to show signs that it was finally moving into the clinic.

The first bet worked out as we know.  RNAi Therapeutics sentiment improved dramatically over the last 12 months, albeit from a very low base.  Unfortunately, Arrowhead Research happens to be the worst performing publicly traded RNAi Therapeutics company over that period.  The second bet actually also worked out as the recently reported data on decent knockdown efficacy in non-human primates at acceptable safety strongly suggest.  Moreover, the latest advances in DPC subcutaneous delivery provide the technology with added value based on technical differentiation.  Without having maintained the research operation, we would not have seen such progress.      

When Arrowhead made the acquisition, I thought it was too bold and that it would destroy most shareholder value due to dilution.  Although the stock has kept decreasing and new shares were issued, it probably has not fully destroyed it (yet)- so I have to give at least some credit to Arrowhead’s management.


What the H…? Arrowhead Buys a Peptide Library

Turns out though that the boundary between what is a visionary or a delusional company can be a blurry one.  There is reason to believe for this to be the case here after Arrowhead decided to buy the peptide targeting library from Alvos.  As peptide drug conjugates and DPCs are both targeted technologies, the company is pursuing a strategy as a Grand Targeted Therapeutics company dominating all areas of targeted therapeutics.  It also claims that the peptides and DPCs can be used synergistically.  For various reasons, forcing the Alvos peptides on the DPCs does not make sense for the company- trust me.

I agree that targeted therapeutics is the future of the industry and it is a nice vision for an ambitious company with a strong cash flow and $3B on the balance sheet.  But even if this were the case, I doubt that a realistic Board of Directors would approve such a strategy.  The reality is that getting DPC delivery to work alone is more than enough on Arrowhead's plate.  Licensing out the peptide library would just be peanuts and consume much of the energy required for more worthwhile business development efforts.

Worse, the acquisition of the peptide library makes Arrowhead look like the old technology fashion-chasing company.  This impression is further strengthened by the emphasis of the peptide library over RNAi Therapeutics in the latest investor presentations. Biotech investors have learned to avoid such increasingly rare traps. 

Would you invest in Arrowhead Research?  Take part in the survey in the top right-hand corner.

14 comments:

Anonymous said...

Dirk,

Thanks for the post.

Would value your thoughts (technical and investment) in a post dedicated to the latest IP deal between TKMR and MRNA?

Anonymous said...

Dirk,

Great post. I appreciate your lucid analysis.

I think it's safe to say the great hope for ARWR management is to partner with big biotech/pharma. This could be incredibly difficult since most of their assets are very early stage. I worry that a deal won't come soon enough, and ARWR will have to continue dilutive strategies, destroying shareholder value.

Kiesenbiker said...

Very good, Thanks Dirk

I also like that ARWR is concentrating on the RNAi assets and I think they do. The CEO told at least twice, that they are aggressivly pushing ARC-520 in to clinic. And also the response from big pharma to partner ARC-520 with good results, even in a early phase 1.
I can not imagine, that ARWR bought Alvos without having talking to possible partners. Why should you buy a library without having a possible market? Personalised medicine is just starting. There are not a lot of targeting company out there. Maybe ARWR is at the forefront of a new great business? Why should they but too much resources in Alvos? It's just a matter of how the licence agreement is done. You just let big pharma pay for the information.
Sorry for my writeing, I am Swiss

Kiesenbiker said...

Dirk

I am curios, if ARWR will retweete your comments, like they did in the past....?!

I am curios about there next CC in december...Focus on RNAi...

Kiesenbiker

Dirk Haussecker said...

Kiesenbiker...this is not a popularity contest. It is about keeping a company on the track to (shareholder) success. I agree with the CEO's vision as it regards the future of the industry, but a small company like Arrowhead cannot play in all of the areas, no matter how exciting. Rather than blessing every word you hear from the company, it is also your responsibility to ask tough questions.

Anonymous said...

Dirk,

"For various reasons, forcing the Alvos peptides on the DPCs does not make sense for the company- trust me."

Can you clarify why you are pessimistic about actively targeting DPCs with peptides?

Thanks

Dirk Haussecker said...

To give you just one technical reason: the peptides were selected as part of another large particle that would not be expected to extravasate in most tissues. So they are probably selecting targets on the endothelial cells of the vasculature only.

Anonymous said...

Dirk, I think your survey needs another choice:
Yes, DPC's are definitely worth the investment, but caution is required until mgmt wakes up to focus on the true value in their hand.

Anonymous said...

Dirk , my guess is 3 years on ddRNA will exceed SI RNA in the clinic , the technology is used dozens of times every day , Benitecs reliance on univsity labs makes sense given the diverse programs , yes it probably should have retained reagent manufacture but it did not ( very stupid in hindsight , but Hep C is ready for triad. Is HIV , plus gradalis has several trials ongoing

Anonymous said...

What about $ARWR's adipotide (aka prohibitin)? A lot of hype around the non-human primate data - wouldn't a highly efficacious, safe obesity product (albeit in Phase I studies) justify a >$25M valuation on its own?

Dirk Haussecker said...

If it has blockbuster potential as an anti-obesity drug, why run a cancer study? Run down the patent clock?

Anonymous said...

@Dirk,

I assumed it was because they didn't have the cash to run their own study, so they needed MD Anderson to fund it. Plus it's first-in-man so IDMC approval would be easier for a population that's already in bad shape.

What are your thoughts on the value of adipotide?

My question is why a 40-patient study where each patients gets 1 month of treatment and up to 1 year of follow-up is expected to take 4 years to complete. (ClinicalTrials.gov primary completion date May 2016)

Anonymous said...

Sorry, I meant IRB, not IDMC.

Dirk Haussecker said...

In general, I'm not too worried about late study completion dates. Could be due to follow-up, long after the important data has been presented. Having said that, I would hope that by the time the adipotide data is presented, DPC has become the focus of attention, and adipotide, like CALAA-01, will have been all but forgotten.

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