Sunday, February 26, 2006


Our recent focus has been on a very small scale in terms of time, market cap and share price. PTSC ran from 0.26 to 0.72, +177%; FONR ran from 0.65 to 0.76, +17%; and DLGI ran from 0.28 to 0.38, +36%, all in a matter of a few days. If we increase both time frame and share price we get similarly stellar examples, three of our current favorites even in spite of their run-ups over the past few months are AVII, +245%; NVAX, +243%; and DSCO, +29%.

A few longer-term picks haven't worked, yet, but most are working, so let's add one more to the list, courtesy of our biotech specialist, Ilene.


Arrowhead Research specializes in developing cutting-edge, innovative products through its investment and majority ownership of a number of nanotech/biotech subsidiaries. Ownership of Arrowhead Research therefore gives shareholders exposure to a diverse basket of nano- and bio - technologies that may make important contributions to a variety of industries, including medical, energy and materials.

By funding the subsidiaries, Arrowhead Research owns a majority proportion of their Intellectual Property and the products that arise from their research and development. What's so brilliant about this strategy (and why we are so impressed with management) is that Arrowhead's funding comprises a small portion of the money needed for R&D, while U.S. government grants make up a much larger portion of the funding. Yet, Arrowhead retains a majority stake in the subsidiaries -- this arrangement is referred to by the company as "financial efficiency."

With a relatively small initial investment, Arrowhead has rights to the subsidiaries' Intellectual Property, and is able to capture a greater proportion of the future revenue streams generated from the research and development for which it has only paid a fraction of underlying costs.

Our primary focus will be on two of ARWR's biotechnology subsidiaries, Calando Pharmaceuticals and Insert Therapeutics. But before getting to these two promising developmental stage companies, we want to mention two other subsidiaries, Aonex and NanoPolaris.

NanoPolaris is a wholly owned subsidiary which has assembled a portfolio of Intellectual Property related to the development of Carbon Nanotubes from a number of prominent Universities, including Caltech, UCLA, Duke University and the University of Toronto. The company plans to provide a convenient "patent toolbox" to corporations in many industries for integrating nanotubes into their end products. The carbon nanotubes, with their unique electrical, mechanical and thermal properties, can be harnessed to improve many products, including tv displays, solar cells, semiconductor devices and medical products. They hope to "create a manufacturing revolution comparable to what plastics did for materials and silicon did for electronics," according to R. Bruce Stewart, Arrowhead's Chairman and CEO.

Another subsidiary, Aonex, is commercializing their unique process for fabricating semiconductor nanomaterials and applying their technology to next-generation solar cells and other optoelectronic devices. Recently, Aonex has been awarded a Phase I SBIR grant to advance a new class of improved solar cells. Aonex's proprietary process uses lighter weight substrates to create more efficient and powerful solar cells that are less costly to produce. These new "nano-enabled energy" technologies are generating substantial interest from industry and government, according to R. Bruce Stewart.

Arrowhead's Biotechnology Companies

ARWR's majority owned biotechnology companies, Calando Pharmaceuticals and Insert Therapeutics, are focused in far reaching areas of the biotech field, RNA-interference (RNAi) and Nanotech-delivery systems, respectively.

Both companies are using a novel Cyclodextrin-Containing Polymer system for drug delivery. Calando is using the system for delivering RNA to cells, and Insert is working on delivering chemotherapeutic agents. Cyclodextrin is a sugar molecule derivative that does not stimulate an immune response -- because the immune system does not recognize it as foreign. The cyclodextrin-containing polymers can be produced in ideal sizes for particular purposes.

Insert Therapeutics

Insert is using the cyclodextrin polymers to encapsulate a potent and toxic chemotherapy drug, camptothecin, to enhance it's delivery to cancer. Camptothecin is a water-insoluble alkaloid with potent activity against a broad spectrum of cancer types. It's poor solubility and unfavorable pharmacokinetics have thus far prevented it's commercialization.

On Feb. 9, Insert issued a press release noting that they submitted an IND to the FDA to initiate a Phase I clinical trial using IT-101, "a combination of its patented polymer technology, Cyclosert(TM), and the anti-cancer compound camptothecin, to treat patients with unresectable or metastatic solid tumors. The objectives of the Phase I clinical protocol submitted with the IND are to evaluate the safety, pharmacokinetics and tolerability of IT-101 in humans."

Readers who want more information on this exciting new technology should visit ARWR's website.

Calando Pharmaceuticals

Calando Pharmaceuticals was formed last year to develop and commercialize the proprietary technology licensed from California Institute of Technology and Insert Therapeutics and their own Intellectual Property related to RNA interference (RNAi). RNAi is a mechanism used within cells for silencing and regulating specific genes. The ability to selectively silence specific genes through RNAi is believed to hold exciting potential for treating numerous diseases.

Calando seeks to combine their targeted polymeric delivery systems and siRNA to create effective therapeutics agents to treat a variety of diseases. Earlier this month, Calando announced a collaboration with the National Cancer Institute (NCI) of the National Institutes of Health (NIH). With the NCI, Calando will focus on RNAi therapeutics to treat neuroblastoma (an incurable extracranial solid tumor in young children). As stated in the press release "a collaborative study by Caltech and Children's Hospital Los Angeles recently demonstrated that Calando's proprietary delivery technology can deliver short interfering RNA ("siRNA") to targeted cancer cells and inhibit tumor growth in mice by silencing the target gene.... All of the aspects of the project will involve the use of Calando's proprietary RNAi delivery technology that is based on a linear cyclodextrin-containing polymer designed to deliver nucleic acids such as siRNA."

In June 2005, Calando licensed their RNA delivery technology to another RNAi company, Benitec. The companies will combine their technologies to develop an RNAi therapeutic to treat the hepatitis-C virus infection (which represents a $4 billion/year potential market opportunity). Calando's RNA delivery technology combined with their expertise in RNAi has tremendous potential to result in numerous novel therapeutic agents for many human diseases.

For a more detailed discussion visit Calando's website.


We like ARWR for longer term buy and hold exposure to a diverse range of new technologies, a lottey ticket on the next great wave of scientific breakthroughs in Biotechnology and Nanotechnology. Not a bad place to park some money.

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