Arrowhead Pharmaceuticals: A Leading Small-Cap Developer Of RNAi Therapy (NASDAQ:ARWR)

In my coverage of Arrowhead Pharmaceuticals (ARWR) last February, I noted that my primary problem with ARWR is a lack of focus. Just look at this pipeline:

There are, if I am counting it right, some 16 programs in the clinic, and frankly, this is too much. Like I noted last time, they should probably have focused on getting one product through the finishing line. Then, this long-tailed pipeline would have been an asset. If you want a good tail, you want to tack it to a body, right? Here it is all tail, no approved drug – so I feel that instead of the long line of programs being an asset, they make the company lose focus. I have always felt that way about Arrowhead, the undoubted small-cap leader of RNAi therapeutics.

ARWR has traded broadly sideways over the last nearly two years, by which I mean ARWR has not achieved its 2021 highs since around mid-2022. The stock has been rangebound, and it all comes down to what I think is its lack of focus. In my last coverage I noted that there were two are major setbacks for the company – one, poor data from ARO-AAT or Fazisiran in Alpha-1 liver disease due to what the company said is a high placebo performance in fibrosis; and two, Johnson & Johnson (JNJ) was about to return JNJ-3989 back to ARWR. I also noted that JNJ relinquished rights to another ARWR product, ARO-PNPLA3 (formerly JNJ-75220795), which was being developed for NASH. This product now shows up in ARWR’s pipeline, unlicensed, while JNJ-3989 still shows as licensed to Janssen. This looks wrong, because in October, Janssen handed over rights to 3989 to GSK, with which ARWR has an old partnership deal from 2018. Janssen’s exit stems from a general winding down of its hep B interests, while GSK has a synergistic molecule called bepirovirsen, with which 3989 may be administered sequentially.

The other item I covered last time was olpasiran, and I will just provide you that text as background, before I continue:

The single positive news that emerged for ARWR in the last few months is that within 48 hours after the Amgen-partnered heart drug olpasiran declared positive phase 2 data, Royalty Pharma picked up rights to the drug for $250mn upfront and $160mn in milestone payments. This is over and above ARWR’s $400mn deal with Amgen (AMGN). Olpasiran, which is designed to lower levels of apolipoprotein (A’), has competition in Novartis’ pelacarsen, which is a year or more ahead in clinical development, being in phase 3 right now. However, the reduction seen with olpasiran is 95% at 75mg every three months, while pelacarsen at 20mg weekly saw an 80% reduction. If the large 6000-patient phase 3 trial does well, olpasiran will be in a strong position, proving ARWR’s platform yet again.

So ARWR is not without its positives, however the lack of focus does not help highlight the good ones from the bad.

I am going to have to list what ARWR has been doing since my last article. I have to do this as a list because they are extended everywhere and it is impossible to focus on one thing over another. Maybe listing the happenings will help us get a better grip on the ARWR situation. So then, the following key developments happened at ARWR:

In February, ARWR reported positive interim data in healthy volunteers from an ongoing phase 1/2 trial of ARO-C3 which will target complement mediated diseases. Data showed dose-dependent reduction in serum C3, with 88% average reduction at the highest dose which was evaluated.

In April, ARWR’s partner GSK began a phase 2b trial of GSK4532990 in NASH, triggering a $30mn milestone payment to ARWR.

April also saw ARWR receiving another milestone payment of $40mn, this time from Takeda as it dosed the first patient in a phase 3 trial of fazirsiran to treat alpha-1 antitrypsin deficiency associated liver disease (AATD-LD). This was the same molecule which saw some data issues after high placebo performance, as I noted earlier. Apparently, the molecule proceeded to phase 3 undeterred by that mishap. This is the company’s lead program, and its phase 3 trial has a primary completion date of March 2027. This randomized, placebo-controlled phase 3 trial is called REDWOOD and will enroll 160 patients.

Also in April, a Phase 1/2 trial in healthy volunteers for ARO-RAGE targeting asthma patients posted data showing a 90% decline in serum soluble RAGE (sRAGE), which is believed to regulate the inflammatory response in asthma. This is the first clinical validation of ARWR’s Targeted RNAi Molecule (TRiM) platform, which is a novel lung-focused technology delivering “selective therapeutic siRNAs to the lung epithelium via an integrin αvβ6 targeting moiety, mediating durable gene silencing following inhaled dosing.” Delivery of RNAi outside the liver has proven difficult. In 2021, rival Ionis found poor tox data in preclinical studies, as did Arrowhead itself with another program, ARO-ENAC, which saw lung inflammation in animal studies, and was dropped.

In May, Arrowhead posted data from ARO-ANG3’s Phase 2 GATEWAY study, showing a 44% – 48% reduction of LDL-Cholesterol in patients with homozygous familial hypercholesterolemia ((HoFH)). The study is 18 patients showed that ARO-ANG3 at 200 mg or 300 mg on day one and day 84 caused a 48.1% and 44.0% decline in LDL-C at Week 20, respectively. This compares well with Regeneron’s Evkeeza – which has similar data – but is more convenient with subcutaneous dosing every quarter, versus Evkeeza’s once-monthly intravenous delivery.

In June, the company presented updated data from SEQOUIA where the asset did well in various biomarker comparisons. However, here too, the following was seen:

50% of the pooled fazirsiran treated patients showed at least a 1-point improvement in METAVIR liver fibrosis versus 38% in the placebo group

Thus, once again, there’s a high placebo response in fibrosis improvement, just like we saw in the previous data announcement. Of course, these are the same numbers, 38%, so this is not a surprise.

In November, ARWR presented data from Phase 2 studies SHASTA-2 and MUIR of plozasiran (ARO-APOC3), and the ARCHES-2 study of zodasiran (ARO-ANG3) at the American Heart Association (AHA). Data showed that plozasiran achieved mean max reductions of up to 90% in APOC3 and 87% in triglycerides in patients with severe hypertriglyceridemia, while zodasiran once every 12 weeks silenced the expression of angiopoietin-like protein 3 (ANGPTL3) and decreased atherogenic lipoproteins.

Financials

ARWR has a market cap of $4bn and a cash and cash equivalents of $111mn only. Other investments were $292, making total cash and investments at around $403mn.

On Jan 3, when the stock was trading at $32, the company announced a $450mn stock offering priced at $28.5. The stock went up to $40 on the news but fell back to $33, where it is trading right now. The cash is much needed for ARWR to progress its self-owned pipeline, although much of its later stage candidates are outlicensed to big pharma.

About its cash needs, the company says:

…operating cash burn to be $110 million to $130 million per quarter in fiscal 2024 and we expect full year capital expenditures of approximately $150 million as we near completion of our GMP manufacturing facility.

Thus, with the cash+investments at hand, and the cash they raised, they have a cash runway of around 6-7 quarters. Thus, the secondary offering was much needed, and the market appears not to have punished them much for it.

Understanding ARWR

Since Andrew Fire and Craig Mello’s Nobel winning work with RNAi in 1998, five RNAi-based drugs have been approved (there was one earlier, but it was discontinued). These drugs are patisiran (approved, 2018), givosiran, lumasiran, inclisiran, and vutrisiran. These are groundbreaking blockbuster medicines, and all five belong to Alnylam. Alnylam has a market cap of $24bn.

Dicerna is the next big RNAi company. In 2021, Novo Nordisk acquired it for $3.3bn.

Arrowhead comes next. It is “self-owned,” although it has major licensing deals with big pharma. It has a market cap of just $4bn. It has a huge pipeline, and while that may seem like a distraction, if the company can bring some of these to the market, we are looking at a second Alnylam. This is the investment thesis for Arrowhead, very briefly.

Bottom line

I have been covering ARWR for a long time now. It is not yet time to focus on one or two of its programs, although with a couple of them, we are getting there. If you like the RNAi space and want to venture outside ALNY, ARWR is the definitive stock for you. I want to still watch it before taking a major position, but a small pilot position may be warranted, keeping in view the promise of RNAi and the position of ARWR as the leading small-cap RNAi therapy developer.