Plozasiran Launch Will Transition Biotech Focus Despite Regulatory Hurdles

Key Takeaways

• Transition to a commercial stage with plozasiran could significantly boost future revenues and improve margins through successful product launches.
  
• Early-stage obesity programs targeting new treatment pathways may create significant new revenue streams and enhance long-term growth.
  
• Arrowhead's reliance on a single product and regulatory approvals poses significant revenue risks amidst biotech market uncertainties and operational challenges in transitioning to commercialization.

Catalysts

Develops medicines for the treatment of intractable diseases in the United States.

• The anticipated launch of plozasiran, pending regulatory approval, is expected to transition Arrowhead from a development stage to a commercial stage company. This could significantly impact future revenue generation.
  
• The company's pipeline includes multiple independent and partnered launches expected over the next few years. Successful launches will likely enhance revenue and potentially improve net margins as products move from development to commercialization.
  
• Arrowhead's focus on expanding the use of plozasiran through ongoing Phase III studies (SHASTA-3, SHASTA-4, and SHASTA-5) to treat broader populations with severe hypertriglyceridemia and evaluate risk reduction of acute pancreatitis may drive substantial revenue growth.
  
• The company's innovative early-stage obesity programs, ARO-INHBE and ARO-ALK7, target pathways that may fill gaps in current treatments. Successful development could open significant new revenue streams.
  
• Strong financial stability, including a deal with Sarepta that brought in immediate and potential future revenue, ensures funding into 2028. This positions Arrowhead well for sustainable growth and enables continued R&D investment, potentially leading to future earnings growth.

Arrowhead Pharmaceuticals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Arrowhead Pharmaceuticals's revenue will decrease by 13.3% annually over the next 3 years.
• Analysts are not forecasting that Arrowhead Pharmaceuticals will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Arrowhead Pharmaceuticals's profit margin will increase from -26.4% to the average US Biotechs industry of 12.3% in 3 years.
• If Arrowhead Pharmaceuticals's profit margin were to converge on the industry average, you could expect earnings to reach $43.9 million (and earnings per share of $0.26) by about May 2028, up from $-144.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 207.8x on those 2028 earnings, up from -15.1x today. This future PE is greater than the current PE for the US Biotechs industry at 16.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.62%, as per the Simply Wall St company report.

Arrowhead Pharmaceuticals Future Earnings Per Share Growth

Risks

• The biotech market has faced significant weakness and uncertainty in recent years, which may impact Arrowhead's ability to secure additional funding, affecting revenue and earnings.
  
• Arrowhead's success depends heavily on the launch and widespread adoption of plozasiran, a single product, which poses a concentration risk that could negatively impact revenues if it underperforms.
  
• A significant portion of Arrowhead's future potential revenue is tied to regulatory approvals and successful launches, which are subject to unpredictable regulatory outcomes and delays.
  
• Although Arrowhead's discovery engine is productive, transitioning from a development stage to a commercial pharmaceutical company presents operational risks that may affect net margins and long-term earnings.
  
• There is a risk that the expected reductions in triglycerides and pancreatitis incidence may not translate into a competitive advantage or strong market penetration against existing treatments, potentially limiting revenue growth.

Valuation

• The analysts have a consensus price target of $44.5 for Arrowhead Pharmaceuticals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $80.0, and the most bearish reporting a price target of just $17.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $355.7 million, earnings will come to $43.9 million, and it would be trading on a PE ratio of 207.8x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of $15.71, the analyst price target of $44.5 is 64.7% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.