Management got so caught up by their own campaign of pushing
Arrowhead Research as an HBV stock that they set themselves up for failure by
setting overly ambitious goals for that program.
As a result, the stock plummeted almost as rapidly as it had risen first by the Fed-induced biotech sell-off in spring 2014, and especially after first clinical
results (see here and here) of ARC520 in HBV-infected patients did not live up to the hyped-up
expectations. 90% HBsAg knockdowns had been the stated goal for
a single-dose 2mg/kg. This was despite preclinical
studies which suggested that more than 2mg/kg of the endosomolytic DPC component was needed to achieve such robust knockdowns.
While my jaws certainly dropped in disbelief when I heard this, in my mind this has to be chalked up to a lack of full understanding of their company's own technology rather than gross misconduct.
…but for me it has always been subQ, subQ, subQ, extrahepatic
While I very much liked the fact that Arrowhead Research was
at the very cutting edge of the ‘HBV-The-Next-HCV' wave, what originally got me
all fired up about Arrowhead Research was an OTS presentation in late 2012
where they presented impressive (robust and long-lasting) knockdown in
non-human primates with a subcutaneous, most likely single-molecule version of
their DPC delivery technology. Knockdown
that was more potent than anything out there (Alnylam GalNAc-STC at the time)
combined with the convenience of subcutaneous instead of intravenous administration. The latter is practiced with their more
advanced two-molecule DPC version underlying ARC520 and ARC-AAT in the clinic
already.
Single-molecule DPCs should also be the foundation for reaching
tissues beyond the liver, making the transition back to single-molecule DPC all the
more valuable. Given that the liver has
been solved for oligonucleotide therapeutics with Alnylam’s and ISIS’ GalNAcs, opening up new tissues to RNAi is obviously all the
more attractive.
It is unclear what held the company back from taking the
non-human primate achievements almost 3 years ago into the clinic. Scale-up manufacturing issues rank highest on
my list of possibilities.
Company guides for 2015 IND for either subQ liver or
extrahepatic i.v. candidate
During this week’s Q4 earnings conference call, the company
indicated that they have finally achieved long-awaited technological
breakthroughs so that we can now expect them to file an IND for either a liver
target using for the first time a subcutaneous DPC formulation or an IND for an
extra-hepatic target.
Correction/clarification (2 Feb 2015): The company contacted me to clarify that what they said was that they will file an IND in 2015, and in addition to that, nominate a new development candidate that will either be extrahepatic or a subQ liver candidate.
Correction/clarification (2 Feb 2015): The company contacted me to clarify that what they said was that they will file an IND in 2015, and in addition to that, nominate a new development candidate that will either be extrahepatic or a subQ liver candidate.
Interestingly, if
the extrahepatic program should make it to the finish line first, it would still
be administered intravenously, which leads me to believe that it is a target in
the kidney which I consider the only other obvious target tissue amenable to
2-molecule DPC. If the target cell is not the proximal tubule cell, it would suggest that Arrowhead has identified a GalNAc-ASGPR-type ligand-receptor pair for the kidney.
ARWR 2015 playbook
Be it as it may, the prospect of both a highly competitive
delivery technology for the liver and the availability of a new target tissue
makes this a highly attractive re-entry point into ARWR. At $6+ down from the mid $20s not even a year
ago and with almost half of its valuation in cash, I do not see much downside
from the 3-4mg/kg results of ARC520 to be reported in Q2 2015.
Personally, I expect an 80-90% knockdown at 4mg/kg, but
since I have no idea how the market would react to an 80% knockdown, the
results are a coin toss to me, but with a somewhat larger upside (up to $14)
than downside (down to $5) from here.
If the stock trades down, but somewhat dependent on the safety data, it
may be an opportunity to snap up ARWR for the ARC-AAT phase I results coming up by the
end of the year. I consider ARC-AAT a
very robust program with increased knockdown potency compared to ARC520 and
much less ambiguity around what an X% knockdown means.
Right now, Arrowhead Research is an ARC520-only story and that should change once ARC-AAT becomes recognized as a medically and commercially very attractive product candidate
(e.g. an orphan indication with an estimated 100.000 patient population in the
US alone). And
I am convinced that I'm not the only investor to recognize subQ and extra-hepatic as the
ultimate value drivers for ARWR all of which could propel the
stock back to its 2014 highs over the next year.
