What happened

Shares of Arrowhead Pharmaceuticals (NASDAQ:ARWR) gained over 17% last month, according to data from S&P Global Market Intelligence. The biopharma reported operating results through the first nine months of fiscal 2019, which were surprisingly good for a pre-commercial company. The business reported a $51.5 million operating profit in that span thanks to a lucrative development pact with Johnson & Johnson subsidiary Janssen Pharmaceuticals. 

While the development agreement has provided what amounts to a "free" year of operations, Arrowhead Pharmaceuticals hasn't let the opportunity go to waste. The business has advanced multiple drug candidates outside the Johnson & Johnson collaboration, including an important asset it has full commercial rights to.

A bar chart with the last and tallest bar represented by a red arrow on a springboard.

Image source: Getty Images.

So what

Arrowhead Pharmaceuticals is developing a suite of drug candidates based on RNA interference (RNAi) technology. The genetic medicines attempt to treat disease by silencing the expression of faulty RNA, which could treat disease close to the source.

The company's unique RNAi platform promises to be more selective and safer than competing technologies. That's helped it to garner attention from Johnson & Johnson and Amgen. The former is working on a hepatitis B treatment with the potential to cure patients, while the latter is developing a drug for cardiovascular disease. 

Arrowhead Pharmaceuticals is also developing a promising drug candidate aimed at alpha-1 antitrypsin (AAT) deficiency. A phase 2/3 trial enrolled the first patient in early August, although it will take two years to complete the study.

Now what

Investors have rushed to buy shares of Arrowhead Pharmaceuticals and pushed its market cap to $3 billion in the process, which appears to be priced for perfection. While the Johnson & Johnson collaboration could generate lucrative milestone payments down the road, the upside may be limited in the near term.