Shares of Arrowhead Pharmaceuticals (ARWR) spiked in morning trading after shares were upgraded at Baird, with the firm's analyst saying Novartis' (NVS) purchase of rival The Medicines Company (MDCO) means a re-evaluation of Arrowhead's RNAi platform is in order.
MEDICINES CO. TO BE BOUGHT BY NOVARTIS: On Sunday, The Medicines Company announced that it entered into an agreement in which Novartis will acquire the company for $85 per share in an all-cash transaction, implying a fully diluted equity value of $9.7B. The deal is expected to close early next year.
The Medicines Co. is currently developing a cholesterol drug called inclisiran, an RNAi drug. Other companies working on RNAi drugs, include Alnylam (ALNY), which co-developed inclisiran, and Arrowhead Pharmaceuticals, among others. The Medicines Co. plans to submit inclisiran for Food and Drug Administration approval later this year.
ARROWHEAD'S RNAI PLATFORM MUST BE RE-EVALUATED: Baird analyst Madhu Kumar upgraded Arrowhead Pharmaceuticals to Outperform from Neutral with a price target of $70, up from $39, following the announcement that The Medicines Co. will be acquired by Novartis. That deal forces Kumar to re-evaluate Arrowhead' RNAi platform, which is heavily levered to lipid-modifying RNAi drugs for cardiovascular disease, the analyst told investors in a research note. According to the analyst, the Medicines Co. takeout "changes the calculus" on Arrowhead's RNAi platform, calling back to his October 24 downgrade of Arrowhead, which said that after The Medicines Co.'s positive clinical data for inclisiran, "If [Medicines Co.] were to subsequently be acquired, that would be a further positive signal for the lipid RNAi space likely to drive substantial upside for Arrowhead shares."
Given the early positive efficacy for Arrowhead's ANGPTL3 and APOC3 RNAi drugs presented at the American Heart Association meeting, Kumar believes these programs have "the chance to dominate the ANGPTL3 and APOC3 landscapes," though cautioned both are "quite early."
OTHER RECENT ANALYST COMMENTARY: Jefferies analyst Biren Amin on Monday said that assuming The Medicines Co./Novartis deal closes at $85 per share, he thinks the premium on the consensus distributable cash flow of small-mid cap biotech has now increased to 16% for late-stage asset companies.
Cantor Fitzgerald analyst Alethia Young raised her price target for Arrowhead Pharmaceuticals to $50 from $24 on November 19, noting at the time that the stock was up 35% since its R&D day on October 18 and up 287% year-to-date. Young told investors then that RNAi is a "growing, differentiated" modality and Arrowhead's TriM RNAi platform is a "significant step forward" versus prior technology. The analyst, however, thought the shares were fairly valued and was awaiting a better entry point.
PRICE ACTION: In late morning trading, shares of Arrowhead Pharmaceuticals are up nearly 20% to $58.95. Medicines Co. shares, which had previously rallied following reports of the impending deal with Novartis, are up 22% to $83.78.
Alnylam
+6.35 (+5.94%)
Novartis
+0.82 (+0.91%)
The Medicines Co.
+15.255 (+22.25%)
Arrowhead
+9.74 (+19.80%)