Analysts React To Arrowhead's Janssen Collaboration: Downside In Stock May Be 'Misguided'

Arrowhead Pharmaceuticals, Inc. (NASDAQ: ARWR) stock tanked 15 percent Thursday after the company announced a new $3.7-billion deal to license its ARO-HBV treatment for chronic hepatitis B to Johnson & Johnson (NYSE: JNJ) subsidiary Janssen Pharmaceuticals.

Investors clearly weren’t impressed by the new deal, but several analysts are saying it’s not as bad as the market is pricing in.

Terms Of The Deal

The new deal gives J&J exclusive licensing rights on the ARO-HBV program. In return, Arrowhead gets $175 million upon closing of the deal, Johnson & Johnson will take a $75 million stake in Arrowhead at a price of $23 per share, and will be eligible to receive $1.6 billion in payments via an initial tier of milestones and another $1.9 billion in additional payments as the treatment reaches a series of three additional targets.

FBR B. Riley analyst Madhu Kumar told Benzinga the negative market reaction in Arrowhead is the result of investors concluding that Arrowhead is “giving away” its best asset and forfeiting the company’s status as a prime acquisition target. He also said investors are likely “selling the news” and taking profits after the stock gained more than 400 percent year-to-date. Kumar said much of the negative sentiment appears to be misguided.

Cantor Fitzgerald analyst Elemer Piros reiterated his Outperform rating for Arrowhead and raised his price target from $17 to $24. Piros said the cash from the cash from the new deal will help Arrowhead develop its international clinics.

“Overall, we feel the agreement is positive for the company as the support of a large partner could speed up the development timelines, increase market penetration with expertise, and validates the TRiM platform that Arrowhead uses,” Piros wrote in a note.

ARO-HBV Value Estimates

Piper Jaffray analyst Edward Tenthoff reiterated his Overweight rating and raised his price target for Arrowhead from $17 to $25. Tenthoff now estimates ARO-HBV 2025 global royalties of $250 million.

“We view this deal as transformative for Arrowhead dramatically strengthening the balance sheet, finding a strong partner for ARO-HBV, while retaining the rest of TRiM pipeline,” Tenthoff said.

Even after Thursday’s sell-off, Arrowhead shares are still up 311 percent year-to-date. The stock traded around $15.56 at time of publication.

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