Why Arrowhead Research Corp. Shares Plunged 14% in January

ARWR data by YCharts

What: Shares of Arrowhead Research , a clinical-stage biopharmaceutical company focused on treating serious diseases through RNA-therapeutics, plunged 14% in January based on data from S&P Capital IQ following an update on the development of its experimental hepatitis B drug ARC-520.

So what: According to Arrowhead's Jan. 12 press release, the Food and Drug Administration verbally informed the company that ARC-520 was on a partial clinical hold. Arrowhead had planned to move into phase 2b studies testing its hepatitis B product at 2 mg/kg and 4 mg/kg doses, but has been requested to start a multiple-dose study at 1 mg/kg per the FDA despite no adverse events being reflected in previous clinical studies.

In addition to the partial clinical hold, the FDA requested more info from Arrowhead concerning its phase 2a studies involving ARC-520 in dose ranges of 1 mg/kg to 4 mg/kg. The FDA has agreed to provide a formal letter to Arrowhead detailing its requests within a 30-day period of the Jan. 12 update from Arrowhead.

Source: Arrowhead Research.

Now what: Taking into consideration that ARC-520 is Arrowhead's most advanced internally developed product the news of a partial hold is a bit scary. It's possible that the FDA will find nothing wrong in its review of Arrowhead's phase 2a data and everything will work out just fine.

However, investors also have to take into consideration whether or not ARC-520 can really be the success that Arrowhead's management has touted it could one day be. In early October Arrowhead's shares were decimated after it failed to achieve a 90% or greater reduction in HBsAg levels (the hepatitis B virus surface antigen). This follows commentary from the company in August that it believed 1 mg/kg to 2 mg/kg doses may not be enough to hit the 90% or greater reduction level which Arrowhead believes is pivotal for the immune system to take over and cure the disease. Therefore, investors have to wonder if ARC-520 can truly be effective at just a 1 mg/kg dose.

As for me, I plan to remain safely planted on the sidelines. Any sort of clinical hold, especially in such a young and underdeveloped pipeline like Arrowhead's, is the perfect cue to keep my distance. It'll likely be years before Arrowhead has any chance at profitability, and until I see significant pipeline progress there's just very little reason to be excited about Arrowhead Research's prospects.

The article Why Arrowhead Research Corp. Shares Plunged 14% in January originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.