Why Arrowhead Research Corp. Shares Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Arrowhead Research , a clinical-stage biopharmaceutical company developing RNAi-based therapeutics, surged by as much as 29% after RBC Capital analyst Michael Yee, and Deutsche Bank analyst Alethia Young, initiated coverage on the company.

So what: Before the opening bell, RBC Capital analyst Michael Yee started coverage on Arrowhead with an outperform rating and a price target of $35, implying 66% upside based on yesterday's closing price. The coverage initiation comes on the heels of an OK for the company to begin a pivotal phase 2a trial of its hepatitis-B drug, ARC-520, on Monday. Yee believes there could be blockbuster potential for ARC-520. Similarly, Young initiated coverage on Arrowhead with a buy rating, and an even more robust $45 price target, implying 113% upside from yesterday's close. Young, according to Investor's Business Daily, estimates ARC-520's peak sales potential at $5.2 billion.

Now what: As a reminder, analyst actions rarely have any bearing on our long-term investing thesis, so it's probably best not to chase this move higher, or focus on their price targets. Instead, we should let ARC-520 and the remainder of Arrowhead's pipeline do the talking. For now, we're dealing with a very early stage experimental therapy which, as of now, has merely been tested for safety. It remains to be seen if ARC-520 can translate into the efficacy that Yee and Young are expecting, but I'd suggest, at least early on, that much of that optimism has already been baked into Arrowhead's share price.

Arrowhead Research may be soaring today, but it'll probably have a hard time keeping up with this top stock in 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

The article Why Arrowhead Research Corp. Shares Surged originally appeared on Fool.com.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool has no position in any companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.