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Why Shares in Arrowhead Research Dropped Over 15% Today

By Todd Campbell - Jan 19, 2016 at 4:20PM

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Investors were unimpressed by a decision by EU regulators to give ARC-AAT orphan drug status.

What: Despite reporting that EU regulators have designated its ARC-AAT as an orphan drug for a rare liver disease, shares in Arrowhead Research (ARWR 3.64%) slumped by 16.2% today.

So what: ARC-AAT is in clinical studies for use in treating patients with liver disease associated with alpha-1 antitrypsin deficiency (AATD).

In AATD patients, a genetic mutation causes the overproduction of malformed AAT, an inflammatory protein believed to cause of progressive liver disease. ARC-AAT's curbs the production of AAT, potentially halting disease progression and promoting tissue repair.

There are an estimated 100,000 people in the U.S. with this condition, and it affects less than five in 10,000 people in the EU.

Now what: The orphan designation in the EU reduces regulatory fees and provides for a longer 10-year period of exclusivity. ARC-AAT was similarly awarded orphan designation in the U.S. in 2015, so the EU's decision isn't unexpected.

Getting orphan designation, however, does not guarantee that ARC-AAT will prove to be efficacious and safe in its clinical trials, which remain in the early stages.

In addition to ARC-AAT, Arrowhead Research is developing other therapies that engineer RNA to alter protein expression, including ARC-520, a drug in development for hepatitis B. ARC-520 is in mid-stage results, and if successful, it could reshape hepatitis B treatment by providing an upstream therapy that delivers a functional cure.

Image source: Arrowhead Research.

Results from various ARC-520 monotherapy and combination therapy trials should be available this year and next year and phase 1 data for ARC-AAT is expected by the end of 2016. Overall, RNA therapies have struggled in the clinic, so investors might want to be patient and wait for results before considering this stock for portfolios. 

Todd Campbell owns shares of Arrowhead Research. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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