What happened

Shares of Arrowhead Pharmaceuticals (NASDAQ:ARWR) rose more than 38% last month, according to data from S&P Global Market Intelligence. The incredible rise was catalyzed by fiscal first-quarter 2019 operating results, highlighted by a licensing deal with Johnson & Johnson subsidiary Janssen. 

Of course, it will take many years before investors know whether the collaboration will live up to its potential. That might help to explain why shares of Arrowhead Pharmaceuticals have dropped 6% since the end of February, although it would be difficult for investors to complain with the company's $1.7 billion market cap.

Plants growing in a gradually ascending row.

Image source: Getty Images.

So what

The licensing deal could net the development-stage RNA interference (RNAi) developer up to $3.7 billion in milestone payments plus royalties on commercial sales. Arrowhead Pharmaceuticals received $175 million in cash upfront and another $75 million in equity investment from Janssen, which will de-risk the development of other drug candidates in its pipeline.

Janssen made the deal specifically for ARO-HBV, an experimental RNAi drug being developed as a potential treatment -- and perhaps even a cure -- for hepatitis B. It's only in a phase 1 clinical trial now, but the Johnson & Johnson subsidiary is clearly willing to bet the drug's unique mechanism of action could represent a blockbuster treatment one day. The licensing deal also provides the option to co-develop up to three additional drug candidates for various diseases.

Now what

It's great to see Arrowhead Pharmaceuticals out-license an early stage drug candidate for such an impressive sum. The initial results from several of its experimental RNAi treatments hint at a promising future, although it's important for investors to remember that it's still very early.