Are you looking for stocks that can make dramatic moves in a short amount of time? If so, you'll want to check out Arrowhead Pharmaceuticals (ARWR -2.15%). SVB Securities, a subsidiary of SVB Financial, recently gave the stock an upgrade to outperform and raised its price target.
Arrowhead's new price target of $45 per share suggests the stock can gain around 44% over the next 12 months. Before risking any of your hard-earned money on this stock, though, there are some important risks to understand.
Let's weigh this company's strengths against the challenges it's facing to see whether it's a smart buy now.
Reasons to buy Arrowhead Pharmaceuticals stock
Arrowhead Pharmaceuticals develops experimental RNA-based therapies that interfere with the production of troublesome proteins. For example, olpasiran is a treatment candidate licensed to Amgen that Arrowhead designed to reduce the production of lipoprotein(a), a high concentration of which is associated with an increased heart attack risk.
Last December, Arrowhead received a $25 million milestone payment from Amgen regarding olpasiran. Continued success for the new drug candidate could lead to over $500 million in additional milestone payments, and this isn't the only candidate moving through Arrowhead's pipeline. Earlier this month, the company received a $30 million payment from GlaxoSmithKline regarding ARO-HSD, an experimental treatment for people with nonalcoholic steatohepatitis (NASH).
Roughly 5% of the U.S. population has NASH, which puts them at risk of permanent liver damage or worse. There are still no available treatment options for the disorder, so success with ARO-HSD could lead to enormous gains for GlaxoSmithKline and Arrowhead down the road. We'll know more when the top-line results of an ongoing phase 2 trial are ready in 2025.
Fazirsiran is a candidate that Arrowhead is developing in partnership with Takeda to treat liver disease associated with alpha-1 antitrypsin deficiency. It reduced liver fibrosis for half of the patients who received it in a phase 2 study. Arrowhead recently received $40 million from Takeda upon starting a phase 3 study designed to support a new drug application.
The vast majority of new drug candidates that begin clinical trials never go on to earn approval or generate revenue. Arrowhead is taking so many shots on goal, though, that at least one blockbuster drug approval doesn't seem like too much to ask for. Fazirsiran, olpasiran, and ARO-HSD are just three of 12 Arrowhead programs in clinical trials right now, and the company expects this figure to reach 20 by 2025.
Reason to remain cautious
Arrowhead is still a clinical-stage company without any approved products to sell. Milestone payments from collaboration partners have been significant but not large enough to prevent the company from reporting a net loss of $155 million in 2022.
Arrowhead finished 2022 with $202 million in cash, which could run dry before its drugs have enough time to earn approval. Fazirsiran is the most advanced program in Arrowhead's pipeline, and its phase 3 trial just enrolled its first patient earlier this month.
Expectations are already high. The company's market cap is around $3.4 billion. At this valuation, any sign of trouble for an Arrowhead program could lead to swift and severe losses.
A buy now?
Collaboration partners don't shell out eight-figure milestone payments to initiate new trials if they don't believe there's a good chance of success. With plenty of big pharma backing and a large collection of wholly owned candidates to develop later, Arrowhead looks like a good stock for investors who can stomach enormous levels of risk.
