Investors had been eagerly awaiting the results of human tests of a hepatitis B treatment from Pasadena pharmaceutical company Arrowhead Research Corp. But when those results finally came out in an abstract released Oct. 8, they were a huge disappointment. And that pushed the company’s stock off a cliff.

Shares of Arrowhead plummeted 49 percent during the week ended Oct. 8 to close at $7.03, with all of the movement coming on the last day when the data became public. It’s the stock’s biggest fall since October 2004 and makes Arrowhead this week’s biggest loser on the LABJ Stock Index. (See page 30.)

The data, revealed in an abstract prepared for the American Association for the Study of Liver Diseases’ annual meeting next month, showed that a dose of 2 milligrams a week of Arrowhead’s ARC-520 treatment led to a reduction in the presence of the hepatitis B virus – but a much smaller reduction than the company had hoped for and than investors were expecting, based on results from a previous trial on chimpanzees.

During Arrowhead’s Aug. 12 conference call discussing its fiscal third-quarter earnings, Chief Executive Christopher Anzalone called the initial test results he had seen from the trial “extremely exciting” and implied they showed comparable performance between the treatment’s effect on humans and chimpanzees.

Given that upbeat assessment, investors were blindsided by the weaker numbers presented in the abstract, and they fled the company in droves.

Michael Yee, an analyst who covers the company for RBC Capital Markets in New York, wrote in an Oct. 8 research note that the way the news came out “won’t increase investor confidence” in the Arrowhead team.

Anzalone published an open letter the morning of Oct. 9, defending his previous comments as properly reflecting the data he had seen. He said the market reaction took the company by surprise, and that the promising safety data from the trial should allow the company to increase the dosage and achieve its stated goal.

“The drug appears to do what it is designed to do,” Anzalone wrote.

Arrowhead declined to comment to the Business Journal for this story.

In February, Edward Tenthoff, an analyst who covers the company for New York investment bank Piper Jaffray, said that if the chimpanzee test results could be replicated in humans, ARC-520 could become a “functional cure for hepatitis B,” which could mean billions in sales.

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