Nanotechnology Now - Press Release: Arrowhead CEO provides update on company strategy and milestone achievements

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Abstract:
Arrowhead Research Corporation's (NASDAQ: ARWR) ("the Company") President and Chief Executive Officer today issued the following open letter to the Company's shareholders:

Arrowhead CEO provides update on company strategy and milestone achievements

Pasadena, CA | Posted on September 29th, 2010

Our business strategy is dictated by the drive to build long-term value. For us, this means building businesses that address real opportunities in the marketplace with world-class science, high quality management, and capital efficient execution. We believe that by committing to building lasting value in this way rather than focusing on short-term market fluctuations, our shareholders will ultimately be rewarded. However, markets are not always efficient over narrow time intervals, and we view the recent pressure on our stock as the result of short-term market dynamics rather than an indication of a longer-term trend of diminished value. This perspective is informed by extensive real time information about how our businesses are performing and the feedback we are getting from potential partners and customers. Therefore, my goal today is to provide our shareholders with a view of what we see at Arrowhead and to offer some guidance for the last three months of the calendar year.

Let us start with an overview of some of Arrowhead's accomplishments in the first half of the year that helped propel our stock to its 52-week high of $1.85 in June.

* Interim data from Calando's Phase I clinical trial was published in the prestigious scientific journal Nature, representing a significant event for Calando, Arrowhead, and the broader RNAi field. These data represent what we believe to be the first report in humans of: (1) definitive systemic siRNA delivery; (2) definitive gene silencing via the RNAi mechanism; and (3) dose-dependant accumulation of intracellularly localized nanoparticles of any kind. Effective systemic delivery of siRNA has been thought of as the "Holy Grail" of RNAi therapeutics, and our clinical data suggest that we are the first and only company to achieve this. Calando's flexible RONDEL delivery system is not a single drug, but rather a platform that has the potential to lead to many therapeutics in oncology and other indications. We believe that Calando is well positioned to enable a potentially large and robust RNAi field.

* Calando presented interim data from its Phase I clinical trial at the 2010 American Society of Clinical Oncology conference, demonstrating that its lead siRNA candidate, CALAA-01, was safe and well tolerated.

* We have always believed that one of our major competitive advantages is our access to high quality nanotechnologies and the ability to develop those technologies in consultation with world-class scientists. We expanded this ability by adding to our Scientific Advisory Board former FDA Commissioner and Director of the National Cancer Institute, Dr. Andrew von Eschenbach and Nobel laureate Dr. Lee Hartwell.

* Unidym continued work with existing partners and expanded into new markets via an agreement with Guardian Industries. Guardian is a major manufacturer of glass products for solar energy and electronics applications, and this partnership represents an expansion of target market opportunities for Unidym.

* Unidym announced a series of out-license agreements to expand the use of its broad carbon nanotube intellectual property for applications in military and aerospace markets. These are non-core markets for Unidym, so the agreements provide upside exposure without increasing costs or negatively effecting Unidym's ability to capture value in its focus areas.

* The first carbon nanotube-enabled touch sensitive MP-4 players were featured at the 75th China Electronics Fair manufactured with Unidym's proprietary transparent conductive films.

* Former President of Rice University, Dr. Malcolm Gillis, joined Unidym's Board of Directors.

* Minority-owned subsidiary Nanotope, Inc. published data in the prestigious journal, Proceedings of the National Academy of Sciences, demonstrating the ability to regenerate cartilage in accepted rabbit models. This represented another market in regenerative medicine that Nanotope believes it will be able to address in humans with its core platform technology.

* Minority holding Leonardo Biosystems, Inc. received $2.5 million from the State of Texas Emerging Technology Fund to continue development of its novel multi-stage drug delivery platform.

* Arrowhead rejoined the Russell Microcap Index.

* Arrowhead presented at multiple investment community and industry conferences, describing our model and each subsidiary.

* We made continued progress financially by decreasing our burn rate and making our cost structure more flexible without compromising our ability to build long-term value.

The first six months of the year represented a record of steady progress, but we were not finished. We viewed these accomplishments as a basis on which we could build durable value for our shareholders. Nothing we had achieved was by accident, but was the result of a long-term strategy and many quarters of deliberate and hard work. By June, we were already focused on the next phases of that roadmap.

Securing additional capital was a critical component of our plan. We recognized the possibility that a new financing could negatively affect the momentum of our stock price in the short term, and we are sensitive to any dilutive event. However, we believed that it was necessary to raise additional capital to protect the value of our assets in a challenging economic climate and that with additional capital we would have the potential to create a greater return for our shareholders over the long- and even mid-term. Therefore, in June we strengthened our balance sheet with the completion of an $8.65 million financing placed by Oppenheimer & Co. This was a strategic and prudent decision designed to:

1. Increase our flexibility as to the timing of a first partnership with Calando: if data from the clinical trial continue to be positive, the value of such a deal could increase as the trial progresses;
2. Negotiate deals with both Calando and Unidym from a position of strength, rather than of necessity;
3. Invest in progress at Nanotope by funding the preclinical work necessary to help bring new product candidates to partners and the clinic; and
4. Take advantage of the depressed market for new technologies and consider new opportunities to build our nanomedicine portfolio.

The financing gave us the tools we needed. Unfortunately, a soft period in our stock price has followed, but we believe this decline is not reflective of the fundamentals of our businesses. We see no material roadblocks to any of our major initiatives and have made significant progress over the past three months. The primary differences between Arrowhead now at $1.01 per share and when we closed at $1.85 in June is that we have more capital and our businesses are more advanced.

So, where are we now as a company and what are our goals through the end of the calendar year? Dr. Mauro Ferrari, one of the most recognized figures in nano-cancer research and now President and CEO of the Methodist Hospital Research Institute, recently joined Arrowhead's Board of Directors. This is an important move for us as it expands our scientific reach and brings deep technical expertise to our Board.

Programs at Calando have progressed well and the Phase I trial continues to enroll patients. The financing gave us better flexibility to evaluate the right set of partnerships rather than having to do a deal immediately, and as we speak with potential partners, we are weighing timing and structure variables.

Having spent the past 3+ years working with partners to develop prototypes and next generation products with its materials, Unidym is now focused on the less glamorous task of optimizing supply chains and manufacturing processes. While we continue to source new partners and develop new applications, we view Unidym's new focus as indicative of a maturing business. We are progressing well on these fronts and are exploring opportunities to make Unidym financially independent of Arrowhead. We see significant value in Unidym, however Arrowhead is moving toward becoming a focused nanomedicine company and Unidym does not fit with that strategy. Once we are able to make this transition, we will increase our operational efficiency and simplify our story into a single industry. The latter is important to bringing new shareholders and analysts to Arrowhead because many institutions find it difficult to evaluate and hold our stock since we have exposure in multiple industries. As we focus on a single industry, we believe we will increase the universe of investors who can consider Arrowhead as a part of their portfolios.

For over a year, we have evaluated technologies to address the large, growing and underserved obesity markets in a new way. We have identified a platform that is believed to kill fat tissue by specifically targeting the blood vessels that supply it. This has been featured in respected scientific journals such as Nature Medicine and popular press such as The Wall Street Journal, New York Times, and television outlets. We signed an option agreement with The University of Texas MD Anderson Cancer Center to negotiate a license for this technology, and we believe the platform is an attractive candidate around which to form a new majority-owned subsidiary to steer the technology through clinical development. Such an addition to our portfolio could help to build out our profile of later-stage nanomedicine companies and may represent another near-term value driver for our Company.

Leonardo Biosystems has been deploying funding from the state of Texas to further develop its multi-stage platform that is designed to work with existing drug delivery vehicles to increase efficacy of cancer drugs while decreasing toxicity and side effects.

Nanotope has continued to make progress on its regenerative medicine platform, with work on multiple indications. Its model is to source partners on an indication-by-indication basis and to have those partners assume remaining preclinical development and clinical trial costs. We believe that Nanotope's accomplishments this year position it well to execute on a first partnership in the near term. We view Nanotope as an important part of our Company going forward and a model of the type of businesses we build.

Arrowhead's strategy is grounded in maximizing our chances of success: in other words, increasing the number of our shots on goal. Many biotech companies are built around a single drug candidate and live or die by the success or failure of that compound. We view this as a bet, not a business, and Arrowhead does not employ this strategy. Rather, we have multiple subsidiaries, each focused on a different area of nanomedicine. Further, each subsidiary is based on platform technology with the potential to generate multiple therapeutic candidates. For example, Calando's delivery system can be used and optimized for a virtually unlimited number of RNAi therapeutics; the anti-obesity technology is a platform that can be used to develop a virtually unlimited number of compounds; Leonardo Biosystems is a platform that can incorporate other drug delivery systems to create a huge number of potential drugs; and Nanotope is based on a platform that has been shown in multiple animal models that it can be customized to regenerate diverse tissues including bone, spinal cord, brain, cartilage, and wound beds.

As you know, I have personally invested a reasonably large amount of money into Arrowhead and its subsidiaries over the past two years because I believe in what we are doing. Our CFO, Ken Myszkowski, and I both bought additional stock during our last open period in August when we were able to acquire shares in the open market. These were not terribly large purchases, but they are further evidence that our management team remains confident in our business and future projects.

Looking ahead, we have an aggressive schedule of goals through the end of calendar year 2010. This is a long list and only three months remain, but we are working diligently to meet them. We may not hit them all, but watch what we do and view this as a scorecard to monitor how we are performing:

1. Complete enrolling patients in Calando's Phase I;
2. Establish a first partnership with Calando;
3. Execute a new corporate partnership at Unidym;
4. Make Unidym financially independent;
5. Move toward spinning Unidym out or selling the company;
6. Complete a first commercial partnership for Nanotope;
7. Consolidate Arrowhead's ownership position in Nanotope;
8. Execute a license agreement with MD Anderson Cancer Center for the anti-obesity technology;
9. Work with the FDA toward filing an IND for the anti-obesity technology;
10. Launch a new nanomedicine subsidiary;
11. Begin operations at Leonardo Biosystems outside of the lab of Dr. Ferrari;
12. Reemerge as a focused nanomedicine company;
13. Expand Arrowhead's Board of Directors to increase our expertise in nanomedicine.

Investor outreach remains an important focus as we meet these goals and move to becoming a focused nanomedicine company. We are engaging in a number of activities to increase our Wall Street visibility and bring our story and value proposition to new investors. We were proud to be represented by Oppenheimer in our last financing and believe that working with a bank of this caliber may yield longer-term benefits by improving our visibility among institutional investors. Earlier this month, I presented at the Rodman & Renshaw Annual Global Investment Conference in New York. Next week, I will be presenting at the 9th annual Bio Investor Forum in San Francisco. On November 2nd, I will be presenting at the 21st annual Oppenheimer Healthcare Conference in New York. I will also be meeting with potential new shareholders regularly through the end of the calendar year and into next year to increase our visibility.

Thank you for your ongoing support and interest in Arrowhead, and I look forward to providing additional updates on our progress in the coming months.

Sincerely,

Christopher Anzalone

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About Arrowhead Research Corporation
Arrowhead Research Corporation (www.arrowheadresearch.com) (NASDAQ: ARWR) is a nanotechnology company commercializing new technologies in the areas of life sciences and electronics. Arrowhead is seeking to build value for shareholders through the progress of its portfolio companies. Currently, Arrowhead is focused primarily on its two majority owned subsidiaries, Unidym, a leader in carbon nanotube technology for electronic applications, and Calando, at the forefront of clinical application of RNAi delivery technology. Arrowhead also has minority investments in two privately held nanobiotech companies.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

This news release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of the date hereof. Our actual results may differ materially and adversely from those expressed in any forward-looking statements as a result of various factors and uncertainties, including the future success of our clinical studies, our ability to successfully develop and manufacture products, rapid technological change in our industry, changes in demand for our future products, legislative, regulatory and competitive developments and general economic conditions. Our Annual Report on Form 10-K, and other SEC filings discuss these and other important risk factors that may affect our business, results of operations and financial condition. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

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