Why Arrowhead Pharmaceuticals Stock Spiked Today

By Markets Fool.com

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What happened

Shares of the clinical-stageRNAi therapeutics companyArrowhead Pharmaceuticals (NASDAQ: ARWR) gained more than 10% in early morning trading today. This northward move was sparked by a collaboration with biotech heavyweightAmgen (NASDAQ: AMGN) to develop and possibly commercialize two of Arrowhead's experimental cardiovascular therapies.

According to the press release, Amgen agreed to a global license for Arrowhead's RNAi ARC-LPA program designed as a novel treatment for elevated lipoprotein(a), a known risk factor for atherosclerotic cardiovascular disease. In a separate deal, Amgen will also receive an option for a global license to an RNAi therapy indicated for undisclosed cardiovascular target. Amgen will be responsible for the clinical development and commercialization of both experimental therapies.

So what

This deal is important for Arrowhead because it provides a much-needed infusion of cash. Specifically, the biotech is set toreceive $35 million in upfront payments, along with $21.5 million via an equity investment by Amgen in Arrowhead's common stock. That's a big deal for a company that exited the most recent quarter with less than$45 million in cash, yet has a quarterly burn rate of approximately $19 million.

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Now what

The key issue to understand is that Amgen's twin licensing deals revolve around therapies that are still in the pre-clinical stage of development. So while it's always a good thing when a top biotech takes an interest in your platform, the fact remains that these therapies will take several years to make their way through the clinical testing process. As such, Arrowhead's shareholders should probably remain focused on the company's more advanced clinical assets -- such asARC-520 and ARC-521 forhepatitis B -- when considering if this stock is worth buying right now.

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George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.