Why Arrowhead Pharmaceuticals Inc. Is Plummeting Today

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What happened

Shares of Arrowhead Pharmaceuticals (NASDAQ: ARWR), a clinical-stage biotech focused on RNAi therapeutics, are falling by more than 28% as of 2 p.m. EST on Wednesday.

So what

Arrowhead stated that the U.S. Food and Drug Administration has verbally notified the company of the agency's decision to place a study called Heparc-2004 on hold. This study is researching Arrowhead's lead compound ARC-520 as a potential cure for hepatitis B, a disease that afflicts roughly 350 million people globally.

Arrowhead said that the agency ordered the clinical hold so that the company can provide answers to questions that arose from a nonclinical toxicology study involving nonhuman primates using EX1, which is the company's intravenously administered delivery vehicle.

The company stated that the FDA did not order the hold based on any human findings. Rather, the agency found that when EX1 was used in primates at dosage levels that were higher than those used in human testing, it led to animal deaths.

Many traders believe that this update raises the company's risk profile, which is why shares are tanking today.

Now what

Management picked quite an interesting time to issue this press release. The news hit the wire late on Tuesday evening when coverage of the U.S. election was in full swing. That suggests that the company was trying to release this bad news when investors were distracted. However, the move didn't work, as shares of Arrowhead tanked anyway. The stock's move on Wednesday also stands in stark contrast to the rest of the biotech industry: The First Trust NYSE Arca Biotechnology Index (NYSEMKT: FBT) is up nearly 8% on the heels of the election results.

Arrowhead did provide investors with more information in the press release to show why it believes that human testing with EX1 remains safe. The company stated that EX1 has been used in more than 300 human subjects with only three serious adverse events being reported thus far. Two of those adverse events were fevers, which were simply treated with acetaminophen. After treatment, both patients chose to continue with the study and showed no further complications.

While that data does suggest that EX1 is safe, nothing is ever guaranteed in the world of clinical-stage biotech. I'd suggest that investors hold off buying on this dip until we get the all-clear from the FDA.

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Brian Feroldi has no position in any stocks mentioned.Like this article? Follow him onTwitter where he goes by the handle@Longtermmindsetor connect with him on LinkedIn to see more articles like this.

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