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Here's Why Arrowhead Pharmaceuticals Shot 237.5% Higher in 2018

By Cory Renauer – Updated Apr 17, 2019 at 11:35AM

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A reversal of fortunes made last year one for the record books.

What happened

Shares of Arrowhead Pharmaceuticals (ARWR 2.58%), a clinical-stage biopharmaceutical company, rocketed 237.5% higher in 2018, according to data from S&P Global Market Intelligence. The stock began the year under pressure, but recovered in a big way thanks to a growing pipeline of early stage RNA interference drugs.

So what 

In 2016, toxicity concerns forced Arrowhead Pharmaceuticals to abandon its its entire clinical-stage pipeline. The company's RNA drugs interfere with the expression of troublesome genes inside cells, but safely getting them in position is a challenge. Arrowhead stock took off in 2018 because it looks like the company's next generation of new drug candidates gets the job done safely.

Guy in a suit with a jetpack following an upward sloping chart.

Image source: Getty Images.

In March, Arrowhead began dosing healthy volunteers with ARO-AAT, an experimental treatment for a rare liver condition that uses a new delivery technique. Patients who actually have alpha-1 liver disease will soon get a chance to test the treatment because the safety study was a success.

A couple of weeks later, Arrowhead began dosing patients with its next candidate, ARO-HBV, and by October, Johnson & Johnson (JNJ 1.01%) was ready to sign a deal worth $250 million to help develop it. The healthcare giant was drawn to early results that showed the treatment knocked the hepatitis B virus down to nearly nothing. But by then, the market was already beating biotech stocks without mercy. The Nasdaq Biotechnology Index tumbled 20% during the last quarter of 2018.

Now what

Arrowhead has already gained 21% in 2019, thanks to activity for two new drug candidates. ARO-APOC3 is an experimental triglyceride treatment waiting for a green light from the Food and Drug Administration to begin its first clinical trial. The company also began dosing healthy volunteers with ARO-ANG3, another experimental treatment for abnormal triglycerides and cholesterol levels.

With Johnson & Johnson footing the bills for ARO-HBV's development from now on, Arrowhead can advance its growing pipeline without burning through its cash cushion too fast. The company finished September with $76.5 million in cash and investments after losing $54.5 million during the fiscal year ended in September.

Arrowhead will receive $50 million when Johnson & Johnson starts a mid-stage study with ARO-HBV, and this program could deliver another $1.6 billion in potential milestone payments. Arrowhead is entitled to a mid-teen royalty percentage on sales of ARO-HBV, and Johnson & Johnson will also collaborate on new candidates directed at three undisclosed targets with similar terms.

Check out the latest Arrowhead Pharmaceuticals earnings call transcript.

Cory Renauer owns shares of Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson and has the following options: short January 2019 $140 calls on Johnson & Johnson. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.

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