What happened
Shares of Arrowhead Pharmaceuticals (NASDAQ: ARWR) fell over 14% today after the investment bank SVB Leerink initiated coverage of the stock with an underperform rating. Arguing that the company is overvalued relative to recent developments and near-term catalysts, analyst Mani Foroohar gave the stock a price target of just $32 (a market valuation of about $3.2 billion). For comparison, shares ended Friday's trading session at over $56 apiece (a market valuation of about $5.6 billion).
Of course, comments made by Arrowhead Pharmaceuticals CEO Christopher Anzalone at the J.P. Morgan Healthcare Conference haven't helped the debate over the company's market valuation. According to Biopharma Dive, Anzalone said of a potential acquisition, "It would shock me if anybody could write a big enough check to make sense to our shareholders." Investors interpreted that as an indication the company was off the table for an acquisition, which cooled speculation of a buyout that had been fueled by a solid year of progress in 2019.
As of 11:38 a.m. EST, the pharma stock was down 12.1%.
Image source: Getty Images.
So what
It's really not too surprising that investors and analysts are reconsidering the market valuation of Arrowhead Pharmaceuticals. While encouraging early-stage results from an experimental treatment for chronic hepatitis B (CHB) sent shares soaring last November, a market valuation of nearly $7 billion was a little too good to be true.
For instance, consider that the CHB results were from 12 individuals after 16 weeks of follow-up. The next study will enroll up to 450 individuals and follow them for two years. It's also worth noting that Arrowhead Pharmaceuticals lacks a reliable source of recurring revenue, which will force the business to burn through its cash balance at an accelerated clip as programs mature. Then again, the business exited September with $221 million in cash and raised an additional $267 million in gross proceeds in early December through a public stock offering.
Now what
Arrowhead Pharmaceuticals possesses an abundance of long-term potential on paper, but it will take time to demonstrate that potential in the real world. Investors can debate whether the business is fairly valued at $3 billion (the price target of SVB Leerink), but those with a long-term mindset shouldn't be concerned with the week-to-week stock movements. The results of ongoing clinical trials are what really matters.
10 stocks we like better than Arrowhead Pharmaceuticals
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Arrowhead Pharmaceuticals wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of December 1, 2019
Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
