Arrowhead Research Corporate (NASDAQ:ARWR) has been on my screen as a potential trade since this biotech company’s shares started to collapse from a $17 peak back in September to a low of $4.95 in early December. The question was not whether ARWR had been unfairly punished for releasing clinical data that failed to meet unrealistically high standards. That part was clear. No, the question was when the punishment would stop. With the stock up 28% in the last month, it sure looks as if we have our answer.
Now the question is, can it go higher?
ARWR is a classic pre-revenue biotech story. Nobody on Wall Street realistically thinks the company will be profitable for a few more years (2019 at the earliest), and yet the company’s development pipeline alone, including a novel potential hepatitis cure, still justifies much higher price targets in the $17-$30 range further down the road. The stock is trading just above $7 now because the latest dosing study failed to achieve management’s arbitrarily high targets, but the chart tells me the disappointment is already dissipating.
What we are left with is a company that has a drug that only needs two injections in the course of 15 days to fight hepatitis B as well as a 24-week Interferon course. The drug has already been proven safe at any reasonable dose and initial human trials are tracking as well as they did with chimpanzee subjects, where two doses were necessary to eliminate 90% of hepatitis-linked antigens. This could still be ARWR’s shot at the $1 billion a year currently spent on treating the disease in hospitals alone.
Unfortunately, ARWR management’s expectations for the drug are even higher, leading outside commentators to write the program off as a failure simply because early dosing did not translate into a true one-shot cure. In the grand scheme of things, the difference between one and two shots really doesn’t make much difference. After all, most hepatitis B therapies on the market today concentrate on managing symptoms, not eliminating the virus itself.
ARWR has a potentially revolutionary product here by most standards, so hitting the target in one injection was always an arbitrary goal. If these shares were worth more than $17 when the one-shot narrative dominated the buzz, then they still deserve a price well above the recent $5-$7 range even if it takes an extra dose to achieve the desired effect.
ARWR has recently fought its way past long-term resistance at the end of December and now seems to have found a sustainable base above $6.15. The chart looks to have a clear path all the way to $12, but even a more reasonable move to $9.50 would still bring nice profits. When and if traders learn to love the new dosing outlook, the ultimate upside here may be a lot higher.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network, and other media.
