Arrowhead Pharmaceuticals (NASDAQ:ARWR) recently offered up insight into potential efficacy for its clinical-stage hepatitis B drug ARC-520 that suggest it may offer the best chance yet at a functional cure for hepatitis B, a common liver disease affecting hundreds of millions of people worldwide.

If Arrowhead Pharmaceuticals confirms its mid stage findings in larger and later-stage studies, then it could change hepatitis B treatment in a way that is reminiscent of how Gilead Sciences' (NASDAQ:GILD) transformed hepatitis C treatment.

Revolutionizing treatment
Both hepatitis B and hepatitis C are chronic, tough-to-treat liver diseases that are incredibly common. An estimated 350 million people are infected with hepatitis B globally, including between 1 million and 2 million Americans. Roughly 170 million people are infected with hepatitis C in the world, including as many as 3 million people in the United States.

Both of these diseases can lead to liver failure and liver cancer, two conditions that are life threatening and costly to treat. In fact, hepatitis B is thought to be responsible of up to 80% of liver cancer cases and between 25% and 40% of hepatitis B patients who acquire this disease early in life are likely to develop serious complications.

A cure for hepatitis B has been elusive, but hepatitis C patients are being cured by Gilead Sciences' Sovaldi and Harvoni by the hundreds of thousands of patients annually. Sovaldi won FDA approval at the end of 2013 after showing that it can cure 90% or more of hepatitis C patients by inhibiting an enzyme necessary for hepatitis C replication. Not long after Sovaldi's approval, the FDA also approved Gilead Sciences Harvoni, a combination of Sovaldi and ledipasvir, another enzyme inhibitor.

Because Sovaldi and Harvoni are both effective and safe, they've become the go-to treatments in hepatitis C, generating over $19 billion in combined sales last year alone. 

Delivering data
Although there's a lot more work to do before investors can say that this drug can cure hepatitis B, Arrowhead Pharmaceuticals ARC-520 is putting up very intriguing data in mid stage trials.

ARC-520 delivers small interfering RNA that interferes with messenger RNA to reduce the production of hepatitis B viral proteins. According to the company, dosing ARC-520 alongside Bristol-Myers Squibb's commonly used hepatitis B drug Baraclude delivered up to a 5.5 log, or 99.99%, knockdown in serum hepatitis B DNA, a measure of disease activity.

Additionally, ARC-520 appears to effectively treat patients who are diagnosed with the tough-to-treat HBeAg negative variant of hepatitis B. All patients in this study with HBeAg disease achieved serum reductions that put them at levels consistent with a functional cure.

Importantly, the most commonly reported adverse events reported by patients in ARC-520 trials are upper respiratory infection and headache. 

Work remains
These data results reflect information that has been previously reported in abstracts, so there's not a lot that's new for investors to digest. However, more information should be reported this year by the company because a number of mid stage trials are progressing that have estimated primary completion dates in 2016.

For example, a phase 2 combination study of ARC-520 and Baraclude is expected to reach its final date for data collection this August. Another placebo controlled study of ARC-520 as monotherapy should also be available this year.

Assuming mid stage results remain positive, Arrowhead Pharmaceuticals will meet with the FDA to design final, confirmatory phase 3 studies. Those large, late-stage studies could serve as the basis for a FDA approval and commercial launch, however, phase 3 trials take some time and that means that we're still pretty far away from knowing for sure if ARC-520 is as good at controlling hepatitis B as Gilead Sciences' drugs are at controlling hepatitis C.

Looking forward
A functional cure in hepatitis B is the Holy Grail of HBV research and while ARC-520 is intriguing, there's no guarantee that this drug will pass muster in future studies. Investors should also remember that large, late-stage studies like those ahead for ARC-520 are pricey. Arrowhead is already spending $18.5 million per quarter and it has just $76.5 million in cash. Therefore, as we get closer to phase 3, it wouldn't be too surprising if there was a dilutive stock offering to raise more cash on the horizon.

Overall, Arrowhead is a high risk and high reward stock that in my view, tilts toward the risky side of this equation. For that reason, investors might want to wait until complete phase 2 data is in hand before adding this company's shares to portfolios.