What happened

Shares of Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR) are down 15.4% as of 11:38 a.m. EDT on Monday. The biotech made no announcement, so we can only speculate as to why the stock dropped.

One potential reason is the unexpected departure of Sean Harper, Amgen's head of research and development. Amgen announced on July 26 after the market closed that Harper was leaving "to pursue opportunities in the early stage biotechnology community." Amgen partnered with Arrowhead on development of cardiovascular disease candidates AMG-890 and ARO-AMG1. Harper's exit could have some investors worried about the ongoing relationship between Amgen and Arrowhead. 

Another possible cause for the decline in Arrowhead's share price is a sell-off linked to a smaller drop in Alnylam Pharmaceuticals (NASDAQ:ALNY) stock. Both companies develop RNA interference therapies. Because Alnylam's pipeline is more advanced, a negative movement in its stock price can lead to Arrowhead's shares falling by a greater level.

Three scientists looking at image of DNA helix

Image source: Getty Images.

So what

Regardless of what caused Arrowhead's share price to fall, investors shouldn't panic.

For example, let's suppose the decline stemmed from worries about Sean Harper's departure from Amgen. The reality is that there's no reason to think that Arrowhead's relationship with Amgen will be negatively impacted by Harper's exit. Big biotechs like Amgen don't allow single individuals to make partnership decisions on their own.

If today's sell-off was instead related to Alnylam's stock decline, there's still no cause for alarm. Alnylam actually had good news over the weekend, with Europe's Committee for Medicinal Products for Human Use adopting a positive opinion recommending approval of patisiran in treating hereditary transthyretin-mediated amyloidosis (hATTR amyloidosis). There wasn't a solid reason behind Alnylam's share price falling today, either.

It's important to also put Arrowhead's latest drop in perspective. Arrowhead ranked as the second best-performing biotech stock of the first half of 2018. The stock soared more than 260% during the first six months of the year. Today's action is only a drop in the bucket compared to the gains experienced so far in 2018.  

Now what

Investors should pay attention to the real news for Arrowhead. There's going to be plenty of it soon.

Arrowhead announces its fiscal 2018 Q3 results on Aug. 7, 2018. The key things to watch in those results are the biotech's cash burn and cash position. At the end of March, Arrowhead had around $69.8 million in cash and cash equivalents and $21.7 million in short-term investments. That's enough to fund operations into the first half of 2019.

For those who have already bought Arrowhead stock, today's decline isn't a reason to sell. However, for other investors, it's important to remember that Arrowhead is a clinical-stage biotech with candidates only in early-stage development. Arrowhead's technology is promising, but the risks associated with buying the stock are also very high.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alnylam Pharmaceuticals. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.