Arrowhead Research Corp.

Arrowhead’s investment case is evolving fast with the recent publication of early but impressive data on its anti-hepatitis B agent, ARC-520, in a chimpanzee model of chronic HBV infection. This showed a 90% reduction in hepatitis B antigens (HBeAg) and HBsAg, sufficient to hold out the potential that the agent could become a functional cure. With the initiation of a Phase I safety study of ARC-520 this year and Phase I/II efficacy study next year, Arrowhead is poised to have a major value inflection point once these data become available.

New ARC-520 Chimpanzee Data Are Impressive
Two injections of ARC-520 in a chimpanzee with chronic infection with HBV led to a 95% reduction in circulating viral DNA and 90% reductions in HBeAg and HBsAg. The reduction of these two antigens by ARC-520 raises the hope that the drug could become a functional cure of the disease, something that is achieved in less than 10% of patients by current standards of care.

Human PoC Data Could Come In 12-18 Months
Arrowhead is on track to start a Phase I safety trial in healthy volunteers in Q313 and a single-dose proof-of-concept pilot trial in HBV patients by the end of 2013 or early 2014. A multiple-dose Phase II trial should start in H214.

ARC-520 Will Become The Main Value Driver
Despite its relatively early stage of development, ARC-520 is set to become Arrowhead’s most important drug candidate and value driver since it addresses a multi-billion market in HBV and has shown profound efficacy in an animal model that closely resembles the human condition. ARC520 also has a straightforward and relatively short development path.

Valuation: New Value Ascribed To ARC-520
We have updated our valuation to include a contribution for ARC-520 for the first time, while revising assumptions for Arrowhead’s two other clinical stage assets. We now indicate a valuation for Arrowhead of $75m, of which ARC-520 accounts for 60%, reflecting its importance. The rNPV can be expected to rise significantly once proof-of-concept efficacy data on ARC-520 are generated in early 2014.

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