What happened

It is a rough day to be an investor in Arrowhead Pharmaceuticals (NASDAQ:ARWR). Shares of the clinical-stage biotech are collapsing, falling more than 65% as of 11:36 a.m. EST on Tuesday in response to the news that the company is abandoning clinical development of several of its late-stage compounds.

A downward-trending arrow superimposed over a digital stock board.

Image source: Getty Images.

So what

Arrowhead announced today that it will discontinue development of ARC-520, ARC-521, and ARC-AAT, which are three of its most promising clinical-stage drugs. In addition, management has decided to reduce its workforce by approximately 30%.

This decision was made mostly in response to the clinical hold that was placed on Arrowhead's Heparc-2004 study, which was researching the company's lead compound ARC-520 as a potential cure for hepatitis B. Arrowhead had previously disclosed that the FDA had ordered the clinical hold so the company could answer liver toxicology questions related to EX1, the company's intravenously administered delivery vehicle, which is used with ARC-520, ARC-521, and ARC-AAT.

Management announced on Wednesday that gathering all of the clinical data to alleviate the FDA's concerns over EX1 would take at least 18 months, and even then there wouldn't be a guarantee of success. Instead of waiting and potentially wasting resources, management felt the prudent decision was to discontinue development of the drugs and refocus the company's efforts on its other clinical programs.

Now what

There's no doubt that this news blows a hole in the bull case for the stock. ARC-520, in particular, held promise to potentially cure patients of hepatitis B, which is a disease that afflicts roughly 350 million people globally. If Arrowhead could have brought it across the finish line it could have easily turned into a blockbuster, so it is painful to see the company abandoning it now.

Looking ahead, Arrowhead plans on throwing all of its might behind its preclinical subcutaneous and extrahepatic programs. Included in this list are the drugs ARC-LPA and ARC-AMG1, both of which are partnered with the biotech giant Amgen (NASDAQ:AMGN).

After accounting for the layoffs and recent payments from Amgen, Arrowhead expects to have enough capital to keep its doors open into 2019. That should be enough time for the company to make some progress on its other programs, and provide clinical data that could get its stock moving back in the right direction.

Regardless, Arrowhead was already a high-risk stock, and today's news raises the company's risk profile even more. I, for one, now plan on keeping far away from this once-promising company.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.