Rising Healthcare Costs And Patent Expiry Will Crush RNAi Prospects

Key Takeaways

• Growth is threatened by stricter reimbursement, increased competition from generics and new gene-editing technologies, and potential regulatory headwinds for novel therapies.
  
• Heavy dependence on RNAi drugs, a few key pipeline assets, and external partners heightens risks around revenue stability and long-term profitability.
  
• A diverse late-stage pipeline, major partnerships, and solid financials position the company for sustained growth, reduced risk, and long-term increases in revenue and profitability.

Catalysts

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

• Rising healthcare cost-containment pressures, especially in the U.S. and European markets, are expected to create a stricter reimbursement environment for high-priced, novel therapies like Arrowhead's RNAi agents, which could significantly limit commercial pricing power and constrain topline revenue growth, even for first-in-class drugs such as plozasiran.
  
• The industry is on the cusp of a rapid increase in generic and biosimilar competition as patents expire and alternative technologies mature, meaning Arrowhead's future RNAi products are likely to experience accelerated erosion of branded exclusivity, reducing both the addressable market and the sustainability of premium pricing, thereby putting long-term earnings at risk.
  
• If regulatory scrutiny intensifies or approval pathways for genetic medicines change-which is increasingly probable given ongoing policy debates and heightened global attention to data privacy and post-marketing surveillance-the cost and duration of Arrowhead's drug development could rise sharply, increasing operational risk and delaying revenue realization from key pipeline assets.
  
• Arrowhead's deep concentration in RNAi exposes it to the risk of technological displacement, especially if emerging modalities such as CRISPR or newer gene-editing solutions demonstrate superior efficacy or safety in chronic and rare diseases, potentially leading to impaired revenue and net margin growth as payers and providers shift focus to these alternatives.
  
• Reliance on a handful of critical pipeline candidates, as well as on external partners like Sarepta and Takeda for both late-stage development and commercialization, increases exposure to partner-driven discontinuations, renegotiations, or clinical/regulatory failures-any of which could cause sudden, significant reductions in milestone payments, non-dilutive cash flow, and ultimately net margins.

Arrowhead Pharmaceuticals Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Arrowhead Pharmaceuticals compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Arrowhead Pharmaceuticals's revenue will decrease by 52.8% annually over the next 3 years.
• The bearish 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 -25.9% to the average US Biotechs industry of 14.1% in 3 years.
• If Arrowhead Pharmaceuticals's profit margin were to converge on the industry average, you could expect earnings to reach $8.5 million (and earnings per share of $0.05) by about August 2028, up from $-148.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 416.0x on those 2028 earnings, up from -15.3x today. This future PE is greater than the current PE for the US Biotechs industry at 13.2x.
• 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 7.14%, as per the Simply Wall St company report.

Arrowhead Pharmaceuticals Future Earnings Per Share Growth

Risks

• Multiple late-stage drug candidates, including plozasiran, zodasiran, fazirsiran, and olpasiran, are advancing through Phase III or pivotal studies, and regulatory filings and approvals between 2025 and 2029 could drive substantial new product revenue and significantly improve earnings over the long term.
  
• Expanded and diversified clinical pipeline-with up to 20 drug candidates in clinical studies or at market by the end of 2025, and 11 wholly-owned programs-creates multiple opportunities for future product launches, reducing reliance on any single asset and potentially leading to sustained, robust revenue growth.
  
• Strengthening partnerships and collaboration agreements with major pharmaceutical companies such as Sarepta, Takeda, Amgen, and Sanofi bring in large milestone and royalty payments, as well as meaningful non-dilutive capital inflows, directly supporting net margins and long-term cash generation.
  
• Favorable payer dynamics and strong engagement with healthcare providers ahead of the plozasiran launch, as well as demonstrated positive reception at major scientific congresses, increase the likelihood of rapid market uptake and higher sales, which would improve topline revenue and profitability.
  
• Strong balance sheet and improved access to non-dilutive funding-highlighted by the Sanofi-Visirna deal and expected multi-year milestone inflows from Sarepta-provide Arrowhead with the financial resources to accelerate pipeline development, commercial buildout, and business scalability without needing dilutive equity raises, thereby supporting future earnings and shareholder value.

Valuation

• The assumed bearish price target for Arrowhead Pharmaceuticals is $17.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Arrowhead Pharmaceuticals's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• 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 bearish analysts, you'd need to believe that by 2028, revenues will be $60.1 million, earnings will come to $8.5 million, and it would be trading on a PE ratio of 416.0x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $16.42, the bearish analyst price target of $17.0 is 3.4% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that the bearish analysts believe on average, the company is fairly priced.
  
• 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.