Why Shares in Arrowhead Pharmaceuticals Surged on News of a Novartis Deal

Key Points

• The deal opens up the possibility of future collaboration.

• Arrowhead moved a step closer to its aim of moving products into clinical trials.

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Shares in Arrowhead Pharmaceuticals (NASDAQ: ARWR) rose by more than 27% in the week to Friday morning. The company's bold aim is to have "20 individual products, either partnered or wholly owned, in clinical trials or on the market by 2025," and the company moved a step closer to that aim with the signing of a global licensing and collaboration agreement with pharmaceutical giant Novartis for ARO-SNCA, a preclinical therapy targeting neurodegenerative diseases, including Parkinson's disease.

Details of the deal

As a result of the deal:

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• Arrowhead will receive $200 million in an upfront payment upon closing, and potentially up to $2 billion in milestone and royalty payments.
• Arrowhead is eligible to receive royalties, defined as "up to low double digits" on commercial sales.
• Arrowhead will complete the preclinical research activities, and Novartis will take sole control once a clinical trial application is made.
• Novartis will receive exclusive worldwide rights to research and commercially develop ARO-SNCA.
• Novartis can also select additional "collaboration targets outside of Arrowhead's current pipeline" developed using Arrowhead's Targeted RNAi Molecule (TRIM) platform.

For reference, the TRiM platform is a key part of the investment case for the stock. Arrowhead's therapies trigger ribonucleic acid (RNA) interference mechanisms. RNA carries out functions encoded in DNA, and in triggering RNA interference, a therapy can target a gene and "silence a disease." The TRiM platform is Arrowhead's proprietary system that enables it to create new RNAi therapies, based on targeted delivery of the therapy to multiple tissues in the body.

Image source: Getty Images.

It's an exciting development that validates Arrowhead's TRiM technology, opens up the possibility of further collaborations, and provides a cash infusion with potentially significant milestones and royalty payments ahead, while passing on the clinical trial and commercial development to Novartis. That's why the market is excited about the stock this week.

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Lee Samaha 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.