Arrowhead Pharmaceuticals has moved to reassure Wall Street about its deal with Sarepta Therapeutics, telling investors it expects its troubled R&D partner to meet its financial obligations.
Sarepta struck a major deal with Arrowhead in November, making a $500 million upfront payment and investing $325 million to secure rights to seven programs. The deal requires Sarepta to pay $50 million a year for five years, plus $300 million tied to enrollment in a myotonic dystrophy type 1 (DM1) study. The DM1 outlay is split in two, with Sarepta expected to pay $100 million when the study hits the first milestone.
As Sarepta’s problems have escalated in recent days, Arrowhead investors have fretted about the future of the deal. The biopharma's stock closed below $15 yesterday, down 21% from its opening price on Friday. Management sought to stop the slide on Wednesday.
“Arrowhead ... expects Sarepta to continue to meet its required financial obligations,” the company said in a July 23 statement. “Sarepta has provided no indication of any intention to fail to fulfill any of its obligations; however, if that occurs, there are clear termination provisions that would cause assets and associated intellectual property to be returned to Arrowhead.”
Arrowhead said it is on track to earn the $100 million DM1 milestone soon and pocket the remaining $200 million by the end of the year. If Sarepta fails to make either payment, Arrowhead would have the right to terminate the DM1 part of the deal. If Sarepta misses one of the annual $50 million payments, Arrowhead can end the entire agreement. Either way, Arrowhead can keep the cash it has received so far.
If Arrowhead ends the deal for nonpayment, Sarepta would still owe a significant financial obligation, Jefferies analysts wrote in a note to investors. The part of the contract that fleshes out those terms is redacted.
The analysts said Sarepta backing out of the deal or canceling the licensing agreement because it cannot run studies is the worst-case scenario. But the analysts believe Arrowhead is well positioned regardless of how the Sarepta saga plays out. The biotech has wholly owned programs, and, if the Sarepta deal falls apart, Arrowhead could either advance the assets itself or partner them with another company.
Shares in Arrowhead opened up 4% on Wednesday, driving the stock back above $15.50.