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Investment Overview
Back in 2019 I covered Arrowhead Pharmaceuticals (NASDAQ:ARWR), a drug developer focused on RNA-interference therapeutics in a note for Seeking Alpha.
The note still provides an accurate overview of Arrowhead’s history, from acquiring RNA assets and a manufacturing facility from Swiss Pharma giant Roche (OTCQX:RHHBY), to purchasing another Swiss Pharma, Novartis’ (NVS) RNA-interference portfolio, assets it failed to develop successfully, before two mega-deals were agreed with Californian Pharma giant Amgen (AMGN), and Johnson & Johnson (JNJ) drug development subsidiary Janssen in 2018, to co-develop a variety of pipeline assets, leading to a surge in the company’s valuation.
I noted that Arrowhead had, somewhat surprisingly for a company with a >$6bn market valuation at the time, only guided two assets beyond the Phase 2 stage, and preached caution, giving the company’s stock a “Hold” recommendation.
I took some heat from readers who felt – like Arrowhead management – that the company’s Targeted RNAi Molecule (“TRiM”) platform, which “utilizes a toolbox of RNAi delivery technologies, chemistries, structures and manufacturing techniques”, according to the company, was ahead of the competition, and that it would only be a matter of time before its drugs transformed the treatment landscape in areas such as hepatitis B, cardiovascular disease, liver disease and other fields besides.
Arrowhead’s stock did in fact go on to hit highs of $90, in February 2021, and $80, in November 2021 (I gave the stock a “Buy” recommendation in May 2020, but it has mostly been a downhill ride for investors since then.
The reality is that more than four years on from my first note on Arrowhead, the company has not secured commercial approval for a drug, and the company has experienced a variety of setbacks and obstacles to progress. As a result, the share price now trades at the same value – $28 per share at the time of writing – as it did before the bull run in 2019 that prompted my original note on the company.
For example, The Janssen partnership, which once promised up to $3.7bn in drug development milestone payments, is no more, having been terminated after Janssen returned a nonalcoholic steatohepatitis (“NASH”) drug candidate to Arrowhead in February 2023, having selected no other assets to develop. This month, Madrigal Pharmaceuticals won the so-called “NASH-Dash, becoming the first company to win approval for a drug in that indication.
A gout drug candidate, HZN-457, being developed alongside Horizon Therapeutics has been shelved, after Horizon, which markets and sells Tepezza, a >$2bn per annum selling gout therapy, agreed to be acquired by Amgen last year. A neuromuscular drug candidate targeting amyotrophic lateral sclerosis (“ALS”) has also been shelved, as have candidates targeting cystic fibrosis (“ARO-ENaC”), and Renal Cell Carcinoma (ARO-HIF-2).
It is not all doom and gloom at Arrowhead, however – in September 2022, when I last covered the company for Seeking Alpha, I noted partnerships in place with Amgen, GSK (GSK), and Takeda (TAK), and wrote:
There are several races to market ongoing which Arrowhead and its partners can potentially win. Numerous liver diseases, with wholly owned assets, Hepatitis B with Janssen, and Cardiovascular with Amgen. After a dull but necessary 12 months, the near-term data readouts are beginning to pile up, as CEO Anzalone has pointed out.
I gave Arrowhead stock a “buy” rating in that note – and even though the stock price has fallen by 25% since, Arrowhead has, at long last, guided some key portfolio assets close to the end of Phase 3 / New Drug Application submission stage. The company reported a $(133m) net loss for fiscal Q1 2024 in early February, and cash and investments of $220m.
Could 2024 be the launch pad for Arrowhead to finally deliver on the promise of TrIM, and secure a first commercial approval, and if so, what effect would these positive developments have on its share price, and current market cap valuation of $3.54bn?
In the remainder of this note I’ll provide business updates, and try to answer that question.
Arrowhead – Near Term Partnered Approval Shots – Plozasiran
Over the past 4 years, Arrowhead’s President and CEO Chris Anzalone has lost none of his enthusiasm for the company and its various projects, telling analysts on the Q1 24 earnings call:
Arrowhead has made a name for itself as a company capable of rapid innovation and development that is building a broad-based diverse business. This is exemplified by our ’20 and ’25 initiatives, where we expect to grow our pipeline of RNAi Therapeutics to at least 20 clinical stage or marketed products by the year 2025.
Arrowhead’s drug development pipeline is as broad and diverse as ever, as we can see below:
Arrowhead pipeline (JP Morgan conference presentation)
As we can see, Arrowhead has three assets in Phase 3 studies – wholly owned plozasiran, Amgen partnered olpasiran, and Takeda partnered faziristan, formerly ARO-AAT.
Regarding plozasiran, the CEO had this to say on the Q 2024 earnings call with analysts:
The PALISADE Phase 3 of plozasiran in patients with genetically or clinically confirmed familial chylomicronemia syndrome, or FCS, is on schedule for the last patient to have their last study visit in the second quarter of this year. This would be the first complete Phase 3 dataset for Arrowhead that potentially would allow us to file our first NDA and launch our first commercial product.
FCS is a small market opportunity, and plozasiran may not be the first drug of its kind to secure US approval in this market. Antisense oligonucleotide specialist Ionis Pharmaceuticals (IONS) has already secured approval for its drug Waylivra for FCS in Europe, and expects to file an NDA for its candidate Olezarsen this year for US approval in the same indication. While Arrowhead continues to wait for Phase 3 data, Ionis has already reported that olezarsen met its primary endpoint of achieving a statistically significant reduction in triglyceride levels versus placebo.
Looking ahead, Arrowhead wants to initiate Phase 3 studies of plozasiran in Severe Hypertriglyceridemia (“SHTG”), a much larger market than FCS, and, likes FCS, a condition characterized by abnormally high levels of triglycerides in the blood.
Approval in this market could open up a “blockbuster” (>$1bn per annum) revenue opportunity, however Ionis is also eyeing up the SHTG market for Olezarsen, and has promised Phase 3 data in 2025. Arrowhead wants to make changes to its study protocols “to accelerate enrollment and enable regulatory filings in the U.S. and other key markets as quickly as possible”, but it is worth noting that Ionis’ Phase 3 study of olezarsen in SHTG began in 2021.
Arrowhead clearly views plozasiran as a key product – the only wholly-owned, near-term commercial opportunity it has, in fact, and suggested on its earnings call that:
There is currently no FDA-approved therapy that lowers triglycerides than more than 20% or 30% and plozasiran has been generally well-tolerated in prior studies.
It seems that olezarsen may have achieved ~60% reductions in triglycerides in clinical studies, however, and, being a long way ahead in the development race, and having already generated successful Phase 3 data, it could be that Ionis’ drug is a better bet for approval and commercial success – Ionis has, after all, already successfully commercialised four drugs, to Arrowhead’s zero.
Arrowhead – Near Term Approval Shots Olpasiran, Fazirsiran
If there are some doubts around how successful a drug plozasiran may be, perhaps Amgen partnered olpasiran is a safer bet? It has certainly been a solid earner for the company milestones-wise, as the CEO has discussed with analysts:
we have received around $362 [ph] million in cash and are still eligible to receive another $535 million in potential payments as certain clinical and commercial milestones are achieved. In fact, we’re eligible to receive $50 million when olpasiran Phase 3 study is fully enrolled, which Amgen recently publicly guided could be in the first half of this year.
Last August, Amgen shared data from a Phase 2 study of olpasiran showing “that doses of olpasiran ≥75 mg Q12W reduced patients’ Lp(a) by >95% at week 36”. The company says >7k patients have been enrolled in its Atherosclerotic Cardiovascular Disease (“ASCVD”) study, and full enrollment is expected in mid-2024.
Novartis Leqvio is approved to treat ASCVD, earning $355m of revenues in 2023, while the Swiss Pharma is also expecting Phase 3 data from another Ionis partnered drug, pelacarsen, in 2025. The reality is that this market may not be worth much more than $1bn, and besides, Arrowhead has sold its rights to earn royalties from the drug to Royalty Pharma.
Meanwhile, Takeda paid $40m to Arrowhead when taking fazirsiran into a Phase 3 study in alpha-1 antitrypsin deficiency associated liver disease (“AATD-LD”) last year. This is a slightly uncertain market, but the positive is that Arrowhead stands to earn 50% of all net sales in the US, if the drug is approved, and 20/25% ex-US. It could be two more years before we know if an approval shot is possible, however.
Other Assets In Arrowhead’s Pipeline – Phase 2 Or Later
Given the length of time taken to progress clinical stage assets at Arrowhead, I am only focusing on assets that are Phase 2 or later. The most exciting of these is probably wholly-owned zodasiran. CEO Anazalone commented during the latest earnings call:
The data we presented at AHA in November on zodasiran’s ability to reduce remnant cholesterol which is believed to be a major contributor to the residual risk of ASCVD after LDL cholesterol is well controlled was very encouraging. In fact, we have not seen any other therapy capable of the type of reductions seen after zodasiran treatment in the Phase 2 study.
Arrowhead’s plan is to target approval in the small indication of Homozygous Familial Hypercholesterolemia (“HoFH”), then expand into heterozygous, and potentially also target ASCVD. Whilst encouraging, this will take time – perhaps 2-3 years before an approval push can be supported in the smaller indication – and the drug still has much to prove in the clinic.
The last assets I want to consider are the GSK partnered assets – firstly a NASH drug in Phase 2 studies, which GSK paid Arrowhead $30m in March last year to advance into a Phase 2b study.
My concern here would be the approval of Madrigal’s Rezdiffra, and the impact that Eli Lilly (LLY) and Novo Nordisk’s (NVO) weight loss wonder drugs Zepbound and Wegovy, plus other GLP-1 agonist drugs could have on the NASH market. Furthermore, this is the same indication of the drug candidate that Janssen ultimately returned to Arrowhead.
Meanwhile, GSK has taken over responsibility for Arrowhead’s Hep B drug, although GSK is substantially further down the development road with bepirovirsen, a drug it has now moved into Phase 3, in partnership with – Ionis Pharmaceuticals.
Concluding Thoughts – Arrowhead’s Claim To Be Ahead Of The Game In RNAi / Antisense Under Pressure – 2024 Could Be A Tricky Year
Studying Arrowhead’s pipeline opportunities carefully, I find it hard to escape the conclusion that Ionis Pharmaceuticals – a company about which I am bullish – appears to be capable of “eating Arrowhead’s lunch” in most indications.
Over the past 4 years, Arrowhead has – so far as I can see – not had a genuinely slam dunk data readout that suggests its TRiM platform has the capability of churning out better drugs than its rivals, such as Alnylam (ALNY), and Ionis.
The company is edging towards an approval in a very small market in which other drugs are already approved, and has given up the rights to receive royalties from arguably its best-looking asset, olpasiran, even if there are some achievable milestones on the table there.
Arrowhead is a little short on funding for a company losing >$100m per quarter, and is unlikely to commercialise any assets before 2025 / 2026, while some notable partners have passed on its drugs.
Although there is a possibility that the TRiM platform could still deliver some compelling data that catapults Arrowhead from a cash-strapped pre-commercial company into a successful commercial one, that will take time, and consider the fact that Ionis – whose market cap is only a little higher than $6bn – has achieved almost everything that Arrowhead needs to achieve in order to grow its share price and valuation.
As such, I am inclined to give Arrowhead stock a “sell” recommendation at this time, being reliant on milestone payments that may not materialise, and unlikely to be a >$100m revenue company before the end of this decade, Arrowhead stock looks a little vulnerable at the present time.
That is not to say Arrowhead is a bad company or will never deliver – it has undoubtedly done some excellent work within the RNAi space and should be lauded for that.
It took Madrigal nearly 4 years to produce the Phase 3 data that allowed it to secure approval for Rezdiffra and realise a >300% share price gain, so I am not necessarily betting against Arrowhead achieving something momentous one day.
In the near-to-medium term, however, I am not sure the company deserves a >$3.5bn valuation based on its near-to-medium term prospects, and now that it is taking on debt and looking financially unstable, I suspect the market may come to a similar conclusion.
