Arrowhead hits mark with upsized US$825m combo funding
Arrowhead Pharmaceuticals raised an upsized US$825m Wednesday from the two-part sale of convertible debt and equity that took advantage of heightened investor expectations over its launch of a new drug and trial results on a second promising candidate.
JP Morgan and Jefferies were lead banks on the pricing of the US$625m six-year CB at a zero-percent coupon and 35% conversion premium to the US$64.50 price set on the concurrent sale of 3.1m shares. The banks were able to upsize the CB from US$500m targeted at launch and price through the aggressive ends of 0.5%–1% and 30%–35% terms marketed on Wednesday.
“The convert market has been an attractive source of funding,” said one banker involved in the offering. “But this is still a biotech, so this financing is about putting the optimal capital structure in place.
“Biotechs historically have issued equity because they do not want to be over levered.”
Arrowhead is transitioning from biotech to commercial-stage pharmaceutical.
Arrowhead’s shares fell 8.8% on Wednesday to US$64.55, a day after surging 10.9% on the release of Phase I/IIa trial results on its obesity drug.
Arrowhead, whose shares traded as low as US$9.57 in April, spent US$42.8m on a capped call to offset dilution from the CB up to a share price of US$119.33, an 85% premium to reference.
The CB market is indeed hot.
To model the CB, the banks guided accounts toward a credit spread and implied vol of 450bp and 55 – high vol but in the context of a stock that has realised nearly 75 vol over the trailing 200 days.
There are multiple reasons for investor excitement.
Arrowhead's Phase I/IIa results on its obesity drug demonstrated weight loss in visceral tissue without affecting lean tissue when the drug was taken in combination with GLP-1. The biotech is planning to advance to Phase IIb trials.
“We view early data as promising with potential for obesity to emerge as another key value driver,” wrote analysts at Morgan Stanley in a note to clients, bumping their price target on the stock to US$81.
Potential blockbuster
A nearer-term value driver is the recent launch of Arrowhead’s drug to treat familial chylomicronemia syndrome, a rare genetic disease characterised by high levels of triglycerides due to impaired breakdown of fat particles.
An estimated 3,000 people in the US have FCS, though many are undiagnosed.
Redemplo, Arrowhead’s FCS drug, has shown potential to treat the far more prevalent severe hypertriglyceridemia, a condition where triglyceride levels are extremely high. Several hundred thousand people are afflicted with SHTG.
At a cost of US$60,000 annually, Redemplo has the potential to become a blockbuster if approved for SHTG. Arrowhead expects to report results on a Phase III SHTG trial in the third quarter, providing a catalyst for its stock and likely to keep vol elevated.
The combo CB-equity financing is an alternative to other recent forms of financing. Arrowhead in late 2024 secured US$825m from a collaborative agreement with Sarepta Therapeutics and raised more money in 2025 by selling off the rights to sell its obesity drug in China to Sanofi as well as from a separate licensing agreement with Novartis.
Arrowhead is using a portion of the proceeds from Thursday’s financing to prepay US$254.9m of loans under a credit facility with Sixth Capital Partners on which it pays 15%.