Arrowhead Pharmaceuticals stock tumbled Thursday after Sarepta Therapeutics liquefied its entire stake in the smaller biotech company.
The beleaguered biotech giant sold more than 9.2 million shares of Arrowhead stock. Sarepta expects to earn at least $174 million in gross proceeds.
Sarepta also transferred nearly 2.7 million shares back to Arrowhead to satisfy half of a $100 million milestone payment tied to a pact the duo signed back in November. The company will pay the other half in cash.
The decision helps stretch Sarepta Therapeutics' cash runway as it faces an expected slowdown in sales of its approved gene therapy, Elevidys. Two recipients of Elevidys died earlier this year, kicking off a high-profile spat between the biotech company and the Food and Drug Administration.
"We view Sarepta's decision to sell its entire stake in Arrowhead as a prudent move to shore up the balance sheet," Leerink Partners analyst Joseph Schwartz said in a report. "However, we think more work needs to be done, and wonder what the read-through (if any) is for the upcoming siRNA data in 2H25."
Sarepta stock slipped a fraction to 20.30, while Arrowhead shares toppled 6.1%, ending the regular session at 18.78.
Arrowhead Pharmaceuticals Pressured
The deal values Arrowhead stock around 18.78 a share, or roughly a 31% discount to the November purchase price, Schwartz said. This likely explains, partially, the drop in Arrowhead stock.
Sarepta says the decision to sell its Arrowhead stake was rooted in strategy, rather than its view of Arrowhead's technology. Arrowhead's siRNA platform silences problematic genes that cause disease. In November, the duo signed a major pact to license and collaborate on a handful of programs.
Later this year, Arrowhead is expected to have results from two of those programs, using siRNA-based drugs to targets forms of muscular dystrophy known as type 1 myotonic dystrophy, or DM1, and facioscapulohumeral muscular dystrophy, also called FSDH.
Leerink's Mani Foroohar kept his market perform and 21 price target on Arrowhead Pharmaceuticals stock.
"We see this update as a reasonable resolution for all parties — easing liquidity concerns for SRPT while removing an overhang and allowing anti-dilutive repurchase of shares for ARWR," he said in a client note.
Sarepta Therapeutics' Debts
But RBC Capital Markets analyst Brian Abrahams expects continued pressure on Sarepta Therapeutics.
"This comprises a relatively small portion of their medium-term obligations, which we continue to believe will rely heavily on future commercial performance for both Elevidys and PMOs as well as regulatory developments — all of which entail some uncertainty — to be met," he said in a report.
PMOs refers to Sarepta's phosphorodiamidate morpholino oligomer drugs. These drugs use exon-skipping technology to treat patients with Duchenne muscular dystrophy.
Abrahams kept his neutral rating on Sarepta Therapeutics stock.
"More pieces of the puzzle need to fall into place, and we are conservative on how much Elevidys uptake will inflect," he said.
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