Shares of Arrowhead Pharmaceuticals catapulted Tuesday after the company inked a broad licensing deal with Sarepta Therapeutics for an array of gene-silencing products.
The deal is worth a whopping $11.38 billion over the next five years. It includes $825 million upfront, consisting of a payment and an equity investment at a 35% premium. Sarepta will also pay $250 million over the next five years, an additional $300 million in near-term milestones, and up to $10 billion in future milestones and royalties on sales.
"This deal eases concerns on liquidity following the recent debt offering," Leerink Parters analyst Mani Foroohar said in a report.
Arrowhead shares rocketed 12% to close at 21.05 and ARWR stock leapfrogged its 50-day line, according to MarketSurge. Sarepta stock jumped too, 13.8% to 130.50, putting it above its 50-day moving average for the first time since Nov. 7.
Arrowhead Deal Also Benefits Sarepta
The deal is also a boon for Sarepta, RBC Capital Markets analyst Brian Abrahams said in a client note. It allows Sarepta to build out its pipeline in adjacent spaces.
Sarepta is licensing four clinical-stage drugs. These include treatments for two neuromuscular diseases, including facioscapulohumeral muscular dystrophy type 1 and type 1 myotonic dystrophy. Sarepta is also licensing experimental treatments for a lung condition called idiopathic pulmonary fibrosis and a movement disorder known as spinocerebellar ataxia 2.
The costs are "not trivial," Abrahams said. But the deal immediately brings an array of potential drugs that are highly adjacent to Sarepta's neuromuscular and genetic expertise. He sees this as a better setup than bringing in a single "swing for the fences" asset through an acquisition.
He kept his outperform rating on Sarepta stock.
"We think the deal plus the share buyback signals confidence in the Elevidys launch — which has been an area of uncertainty for investors — and the stock price, in our view," he said. Elevidys is Sarepta's gene therapy for Duchenne muscular dystrophy patients.
Cash Runway Into 2028
Arrowhead Pharmaceuticals and Sarepta Therapeutics expect the deal to close in the first quarter of next year. It will extend Arrowhead's cash runway into 2028, Leerink's Foroohar said.
He has a market perform rating on ARWR stock.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
