Hepatitis B virus is responsible for nearly 900,000 deaths each year -- nearly twice as many as malaria -- and is the primary cause of liver cancer, which is the second leading cause of cancer deaths worldwide. That helps explain why investors have been so excited about the latest update from Arrowhead Pharmaceuticals (NASDAQ:ARWR) and Johnson & Johnson (NYSE:JNJ) on their collaborative effort to develop a functional cure for chronic hepatitis B (CHB). 

The results from an early-stage clinical trial with 11 patients suggested that a new triple-combination therapy could be the industry's best effort yet to develop a functional cure, but it will take much larger studies with many more individuals to definitively make that claim. Despite that, shares of Arrowhead Pharmaceuticals soared to all-time highs on the news and are now up 310% since the beginning of 2019.

That may have many investors doubting the value of jumping into a position at the current price level. It's a good question to ask, but rather than answer it directly, investors may sidestep the question altogether by focusing instead on a smaller competitor with striking parallels: Dicerna Pharmaceuticals (NASDAQ:DRNA).

A businessman sitting at a table and looking through a pair of binoculars.

Image source: Getty Images.

A promising approach to treating diseases

Both Arrowhead Pharmaceuticals and Dicerna Pharmaceuticals are developing a pipeline of RNA interference (RNAi) drug candidates. RNAi works by reducing the level of expression of targeted genes. If the therapeutic payload can be delivered into cells and selectively target specific genetic sequences, then RNAi treatments could lead to better health outcomes for patients, extending benefits such as fewer side effects and greatly reduced dosing requirements.

The problem is that effective delivery has proved difficult to nail down, a common obstacle for genetic medicines. That's why both Arrowhead Pharmaceuticals and Dicerna Pharmaceuticals have focused considerable effort on developing or gaining access to novel delivery methods for RNAi medicines -- the former with its TRiM platform and the latter with its GalXC platform. 

Both platforms are aimed initially at diseases affecting the liver. Each benefit from its simplicity. The gene-silencing RNA sequence is attached to a molecule (usually a sugar) that's recognized by receptors presented on the surface of liver cells. Once bound, the therapeutic payload can take advantage of cellular machinery already present within liver cells to turn down the expression of disease-causing genes.

Turning heads around the industry

It's too soon to say whether Arrowhead Pharmaceuticals or Dicerna Pharmaceuticals has a superior delivery approach, or if the former's head start will have a material impact on commercial potential. But both have caught the eye of well-funded partners.   

RNAi Developer

Partner, Indication

Financial Terms

Arrowhead Pharmaceuticals

Johnson & Johnson, hepatitis B

$175 million up front, $75 million equity investment, up to $1.6 billion in milestone payments, royalties

Arrowhead Pharmaceuticals

Johnson & Johnson, undisclosed

Up to $1.9 billion in milestone payments total for up to three additional drug candidates, royalties

Arrowhead Pharmaceuticals

Amgen, cardiovascular disease

$35 million up front, $21.5 million equity investment, up to $617 million in milestone payments, royalties

Dicerna Pharmaceuticals

Roche (OTC:RHHBY), hepatitis B

$200 million up front, up to $1.47 billion in milestone payments, royalties

Dicerna Pharmaceuticals

Novo Nordisk, various liver-related cardio-metabolic diseases

$175 million up front, equity investment of $50 million, an additional $75 million over the first three years, up to $357.5 million per drug candidate, royalties

Data source: Press releases and SEC filings.

Neither Arrowhead Pharmaceuticals or Dicerna Pharmaceuticals should encounter cash crunches in the near term. The former exited its fiscal third-quarter 2019 (the three-month period ended June 30) with $236 million in cash and $75 million in deferred revenue from its collaboration deal with Johnson & Johnson. The latter exited September with $313 million in cash -- and that was before it inked collaboration deals with Roche and Novo Nordisk that added $425 million to its cash pile. 

The RNAi developers are poised to duke it out in several clinical programs. For instance, both are developing treatments for alpha-1 antitrypsin deficiency (AATD, AAT, or A1AT), a rare disease that affects both the lungs and liver. Both are targeting cardiovascular diseases, too, although Dicerna Pharmaceuticals and Novo Nordisk have yet to identify specific targets.

The most financially lucrative and important from a public health perspective will be their attempts to develop a functional cure for CHB. Arrowhead Pharmaceuticals and Johnson & Johnson generated promising -- albeit early -- results from a triple-combination therapy involving a nucleos(t)ide analog (the current standard of care), JNJ-3989 (an RNAi drug candidate), and JNJ-6379 (a capsid assembly modulator drug candidate the disrupts a protective layer of hepatitis B particles). 

Meanwhile, Dicerna Pharmaceuticals expects to report initial results from a phase 1 study evaluating the safety and efficacy of DCR-HBVS (an RNAi drug candidate) in mid-2020. That will allow the first head-to-head comparison of RNAi drug candidates in CHB. 

Assuming the drug candidate doesn't flop, investors can expect Dicerna Pharmaceuticals and Roche to study combination therapies of their own. Roche has a deep pipeline of drug candidates it wants to test as part of a CHB therapy, including an immune system-boosting molecule (RG7854) and a capsid assembly modulator (RG7907). 

An RNAi stock for your watch list (at least)

While shares of Arrowhead Pharmaceuticals have soared 310% since the beginning of 2019, Dicerna Pharmaceuticals' stock has posted a year-to-date gain of "only" 120%. The companies are valued at $4.8 billion and $1.6 billion, respectively. 

To be fair, they're not technically equals, as Arrowhead Pharmaceuticals has at least some clinical data available in important and closely watched trials. Most of the programs at Dicerna Pharmaceuticals, including those partnered with major companies, are in earlier stages of development. However, the small-cap peer has a sizable cash position and will have the first results for its CHB program by the middle of 2020. Given the promising results of RNAi drug candidates in CHB to date, that means the stock deserves at least a spot on your watch list.