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Chardan has upgraded Arbutus Biopharma Corp (NASDAQ: ABUS) to Neutral following its underperformance versus Arrowhead Pharmaceuticals Inc (NASDAQ: ARWR) and the S&P biotech index.
Over the past month, Arbutus shares have dropped 26 percent, in contrast to both Arrowhead shares (+11 percent) and the SPDR S&P Biotech Index (+9 percent).
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The Space Is Rather Crowded
However, Chardan is still cautious on the stock, as it believes Arbutus' lead hepatitis B virus (HBV) asset, ARB-1467, has pre-clinical results inferior to competitors in the HBV RNAi therapy space.
The competition includes ARC-520 from Buy-rated Arrowhead, ALN-HBV from Buy-rated Alnylam Pharmaceuticals, Inc. (NASDAQ: ALNY), and BB-HB-331 from unrated Benitec Biopharma Ltd (ADR) (NASDAQ: BNTC).
Chardan noted that the remainder of Arbutus' HBV pipeline consists of previously failed and/or pre-clinical assets, which face competition from unrated Gilead Sciences, Inc. (NASDAQ: GILD), Johnson & Johnson (NYSE: JNJ), Assembly Biosciences Inc (NASDAQ: ASMB) and private companies Replicor and Enyo.
Clinicals
"Clinical trial phase IIa readouts in 3Q16 and 4Q16 are, in our view, unlikely to generate the HBV surface antigen (HBsAg) suppression seen with ARC-520 in Arrowhead's phase IIa study; such HBsAg suppression, we believe, demonstrates a potentially important advance in 'curative' HBV therapy," analyst Madhu Kumar wrote in a note.
Kumar, who has a price target of $3.25 on the stock, assumes a 25 percent probability of success (POS) for ARB-1467, and said Arrowhead, with multiple phase IIb trials ongoing, has a first-mover advantage in the HBV RNAi space.
Shares of Arbutus closed Wednesday's regular trading session at $3.22.
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