(Published on SeekingAlpha.com)
Jan. 26, 2014 : Valuing a biotech, particularly one with no commercial products, is always going to be a controversial exercise. Having written on stocks for a public audience for over a decade (and for institutions before that), I'm still surprised at the number of people who will make comments like "that biotech has no earnings, it's worthless!"
It's an even more challenging exercise with a stock like Arrowhead Research (ARWR), though, as so much of the value of this company lies in its basic technology - technology that will really only show its worth over many years of clinical development work. It's dangerous to say that Arrowhead will be just like Alnylam Pharmaceuticals (ALNY) in a few years, so it deserves a similar valuation. I do believe that you can attribute almost half of the company's value today to its lead clinical compound and that leaves what I think is a pretty modest valuation for the company's overall technology platform.
Delivery Matters
Arrowhead Research is a small biotech looking to operate in the area of RNA interference (or RNAi). RNAi achieves a therapeutic effect by inhibiting the expression of genes, and in theory it is a highly promising approach from both the standpoint of efficacy and safety. I say "in theory" because RNA molecules are fragile and easily broken down by the body. This has made delivery technology a key factor in the development of RNAi therapies, and an area where I believe Arrowhead may have underappreciated value.
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