Arrowhead Pharmaceuticals - Earnings Call - Q1 2014

Transcript

Speaker 0

Ladies and gentlemen, welcome to the Arrowhead Research Fiscal twenty fourteen First Quarter Financial Results Conference Call. Throughout today's recorded presentation, all participants will be in listen only mode. After the presentation, there will be an opportunity to ask questions. I would now like to hand the conference over to Vincent Anzalone, Director of Finance and Investor Relations for Arrowhead. Please go ahead, Vince.

Speaker 1

Thank you, operator. Good afternoon, everyone, and thank you for joining us today to discuss Arrowhead's results for its fiscal twenty fourteen first quarter ended December 3133. With us today from management are President and CEO, Doctor. Christopher Anzalone Chief Operating Officer and Head of R and D, Doctor. Bruce Given and Chief Financial Officer, Ken Myszkowski.

Management will give a brief overview of the quarter and will then open up the call to your questions. Before we begin, I would like to remind you that comments made during today's call may contain certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact, including without limitation, those with respect to Arrowhead's goals, plans and strategies are forward looking statements. They represent management's current expectations and are inherently uncertain. Thus, actual results may differ materially.

Arrowhead undertakes no duty to update any of the forward looking statements discussed on today's call. You should refer to the discussions under Risk Factors in Arrowhead's annual report on Form 10 ks and the company's quarterly reports on Form 10 Q for additional matters to be considered in this regard. With that said, I'd like to turn the call over Christopher Anzalone, President and CEO of the company. Chris?

Speaker 2

Thanks Vince. Good afternoon everyone and thank you for joining us today. During our last conference call in December, we discussed key twenty thirteen milestones and how they derisked our programs and helped shape our current value proposition. That was less than seven weeks ago, so today we will be more forward looking and focus on our plans for this calendar year. 2013 was indeed a great year for us, but we see even more opportunities for value creation in 2014.

We are entering a period of growth marked not only by progress of ARC-five twenty, our candidate against chronic hepatitis B infection, but also by expansion of our clinical pipeline. This is the natural progression for Arrowhead as a maturing company and sets forth a fundamentally different risk profile than we had just a year ago. Let's start with capital. Today, filed a shelf registration statement for up to $200,000,000 in Arrowhead equity securities. Our existing shelf expires this year and we felt a prudent financial management to maintain an effective shelf registration statement.

It also reflects our confidence in ARC-five twenty and the broader DPC platform. We have a tremendous amount of value yet to unlock and we believe the best way to maximize that value is to drive clinical development ourselves and not be dependent upon early partners. For instance, we are prepared to push ARC-five 20 all the way through registration. So does that mean we are raising $200,000,000 right now? No.

We have a very strong balance sheet that gives us runway into 2016 and enables us to fully fund ARC-five 20 through Phase 2b while pushing two additional candidates through clinical proof of concept. The new shelf gives us added flexibility to further strengthen our balance sheet at some point in the future and continue independent development beyond that. The ARC-five twenty clinical program has provided us increased confidence to drive development internally. In October, we completed planned enrollment in a Phase one study of ARC-five twenty in 36 healthy volunteers. The study indicated that ARC-five twenty was generally safe and well tolerated at all six dose level study.

All subjects received their full assigned dose and there were no discontinuations for adverse events or otherwise. No serious or severe adverse events were reported and laboratory results have indicated have not indicated any end organ toxicity in any subject. We later presented unblinded Phase one data at the Hep Dart twenty thirteen conference demonstrating that adverse event frequency and severity were the same between placebo and ARC-five twenty. In November, we applied for regulatory approval in Hong Kong to conduct a single dose Phase 2a study in patients with chronic hepatitis B. The two sites and PIs are well known international KOLs that have conducted many HBV trials.

Ethics committees from both sites have approved our protocol and all necessary preparations are complete. We are waiting for final approval from the Hong Kong Department of Health to begin the study. Communications have been positive and we believe that we will receive approval and begin treating patients this quarter. We are currently planning two dose groups of eight patients each and we expect it to enroll quickly. We believe both cohorts will be at effective dose levels and our primary endpoints are safety and tolerability as well as depth and duration of S antigen knockdown.

We believe the dosing portion will be complete in the second quarter and we will follow patients until S antigen levels return to baseline. While we cannot predict how long the duration of effect will be, we believe the top line data should be available sometime during the summer. Our plan is to provide these data via press release and then present a full data set at a scientific meeting. We a high degree of confidence that the Phase 2a will be successful. The Phase one suggested that we have a safe and well tolerated drug at all doses studied.

We saw no dose limiting toxicities, so we do not expect any safety concerns in the Phase 2a. We have generated a substantial amount of data in multiple animal models indicating highly potent knockdown. For instance, we published data in the journal Molecular Therapy describing ARC-five twenty administration in rodent HBV models that led to three to four logs or greater than ninety nine point nine percent knockdown of HBV gene products. We have generated data in nonhuman primates using other siRNA sequences demonstrating similar results. Most recently, we reported deep and durable knockdown in a chimpanzee with chronic HBV.

Should the 2A work out as we hope, it will represent a great leap forward in HBV research and potential treatment. We believe it will be the first time anyone will have demonstrated consistent S antigen reduction, which is thought to be a critical step in reaching a functional cure. Based on the Phase 2a data, we plan to move into a multi dose Phase 2b in the second half of this year. Preparations for this much longer study are underway and they include completion of our second external GMP manufacturing run, chronic toxicology studies in multiple species, sites and investigator recruitment, protocol development and applications for regulatory approval. The Phase 2b will be a multinational study and will likely include sites in The U.

S, Europe and Asia. We'll be designing the trial to provide a readout on ARC-five twenty's ability to achieve functional cures among other outcome measures. As you can see, 2014 is an important year for ARC-five twenty and we expect substantial value to be created around this program. But 2014 is also about leveraging ARC-five twenty to derisk the DPC delivery platform and broadening out our pipeline. So think of ARC-five twenty as a candidate that drives value directly and as a proxy for other liver based candidates.

Our friends at Alnylam do the same thing with their TTR program over the past year and a half. We have demonstrated that DPCs are safe and well tolerated in humans and we hope that by the summer we will have demonstrated that they are capable of inducing efficient, deep and durable gene product knockdown in humans. This type of clinical validation will enable shareholders and potential shareholders to ascribe value to new candidates relatively early in development. RNAi is a reliable mechanism and many accept the idea that if you can get a potent siRNA sequence to the right tissue type in the right intracellular space then you can reasonably expect target gene product knockdown. Once we show that DPCs can do this safely and efficiently in humans, we will have a machine capable of pushing new candidates into the clinic quickly.

These candidates may have a higher probability of success and lower risk profile relative to early clinical candidates using other therapeutic modalities. This is the point where our upside potential expands substantially and we begin to maximize the value we may extract from our broad platforms. Toward those ends, we expect to have an Analyst and Investor Day at the end of the second quarter to discuss pipeline capabilities and the next candidate. The target and disease area for this next candidate have not been disclosed publicly, but we have said that it is an orphan liver indication. Our current plan is to hold an Analyst and Investor Day to announce the candidate, provide information about the disease area, present preclinical data and give more guidance about the timing for the clinical program.

This should be very similar to the event we held last year on ARC-five twenty and and we hope to include key opinion leaders in the disease area. We expect to file an IND for the new candidate in the fourth quarter of this year. Underneath ARC-five 20 and the next candidate we have programs against other targets. We also have large efforts to develop TPC formulations for subcutaneous administration as well as programs in extrahepatic delivery. We believe these are significant mid and long term value drivers and we hope to provide additional information around them later in 2014.

With that update, would now like to turn the call over to our CFO, Ken Myszkowski, to review our financials for the period.

Speaker 3

Ken? Thank you, Chris, and good afternoon, everyone. As we reported today, our net loss attributable to Arrowhead for the three months ended December 3133 was $10,600,000 or $0.28 per share based on 37,700,000.0 weighted average shares outstanding. This compares with a net loss attributable to Arrowhead of $4,600,000 or $0.33 per share based on 14,100,000.0 weighted average shares outstanding for the three months ended December 3132. Total operating expenses for the three months ended December 3133 were $7,100,000 compared with $5,000,000 for the three months ended December 3132.

Research and development related expenses were $4,500,000 during the quarter and general and administrative expenses were $1,700,000 The increase in operating expenses compared to the year ago period are due to higher drug manufacturing costs related to ARC-five twenty in preparation for Phase two clinical trials. Higher clinical trial expense related to Phase one clinical trial for ARC-five twenty and higher compensation expense primarily due to increased headcount as compared to the prior year. Net income or excuse me, net cash used in operating activities for the first three months of fiscal twenty fourteen were $7,000,000 compared with $3,800,000 in the prior year period. The change in cash used in operating activities is consistent with the change in operating expenses. Turning to our balance sheet.

Our cash balance was $59,700,000 at December 3133. Including investments in fixed income securities, our cash and investments balance was $85,500,000 at December 3133 compared to $29,800,000 at September 3033. The increase reflects the $60,000,000 offering closed in October. Additionally, the company received cash inflow of $2,800,000 from the exercise of warrants and stock options. Our common shares outstanding at December 3133 were $39,000,000 up $6,500,000 from $32,500,000 at September 3033.

Also at December 3133, there were 51,291 shares of preferred stock outstanding. These preferred shares are convertible into 10,700,000 shares of common stock. Common shares outstanding including the conversion of our preferred shares will be 49,700,000.0. With that overview, I'll turn the call back to Chris.

Speaker 2

Thanks Ken. As I mentioned, 2013 was a big year for us, but we believe that 2014 offers even more opportunities for real and durable value creation. They include the following. This quarter, we expect to begin a Phase 2a study of ARC-five twenty in patients with chronic HBV in Hong Kong. Next quarter, we expect to complete dosing in the Phase IIa.

At the end of the second quarter, we expect to have an Analyst and Investor Day to disclose our next candidate. We will discuss the disease, target, preclinical data and clinical plan. In the third quarter, we expect to release top line results from the Phase IIa. In the fourth quarter, we expect to begin a multi dose Phase 2b study for ARC-five twenty. And also in the fourth quarter, we expect to file an IND for our next candidate.

ARC-five twenty remains our top priority and primary value driver, but as it moves through the Phase 2a, it will also serve as a powerful proof of concept for our broader platforms. I believe that this will represent an important inflection point as shareholder value may then be built simultaneously through the success of ARC-five twenty as a candidate and via new candidates that enter the clinic relatively de risked. This becomes a story of leverage and speed. We have developed a machine capable of pushing new candidates into the clinic rapidly that are all built on a validated delivery system. We have all the tools we need to build substantial shareholder value and create new therapies that could positively impact patients worldwide.

I would now like to open the call to questions. Operator?

Speaker 0

At this time, we will begin the question and answer session. And our first question comes from Ted Tenthoff of Piper Jaffray.

Speaker 4

Great. Thank you very much for taking the question. Just a question on the upcoming phase 2a. What still has to be done? What are we waiting for for dosing?

And how quickly do you expect to be enrolling that? Are we going to do one cohort and then subsequently the second cohort, how does how do we expect that to roll out?

Speaker 2

Thanks, Ted. Bruce, do want to handle that call that question?

Speaker 5

Yes, sure. Good afternoon, Ted. So the all we're waiting for now is the approval final approval from the Hong Kong authorities. And we expect that fairly soon after completion of the Chinese New Year, but we of course don't control that. But we're hopeful that that will come soon and then we will be ready to go.

We will complete enrollment in the first cohort, of course, before we would start the second cohort, But we're not required by protocol to wait until the first cohort have all completed their follow-up. So once everybody has been enrolled and have had at least a relatively short brief period of follow-up for the last patients in, we'll be able to start the second cohort. And we're hoping that that will go fairly quickly.

Speaker 4

Excellent. And you will be measuring viral load reductions as well, but obviously the focus is on SA antigen, correct?

Speaker 5

Well, we're going to be on a background of entecavir. Viral load should already be fairly fully suppressed or maybe even undetectable. If there is virus present, will be measuring the further decline. But many of these patients will not have a detectable DNA. So the main this year is on this antigen.

Speaker 4

Awesome. Thank you very much. Looking forward to hearing what the next program is too.

Speaker 2

Thank you, Tae.

Speaker 0

And the next question will come from Thomas Wei of Jefferies.

Speaker 6

Thanks. I just wanted to understand in the chimp study, the chimp did receive two doses of drug but you talk about it as being given so close together in time that it's actually more like a single dose of drug at just like twice the dose exposure. Can you remind me how that dose compares to the doses that are being used in the Hong Kong study? I'm sorry, I can't remember that. And then also a comparison of what surface antigen levels were in the Chimp relative to what it might be in an E antigen negative population in Asia.

Speaker 2

Sure. Thanks very much, Thomas. The doses in the Chimp were two mgs per kg and three mgs per kg. As you point out, those were it was really short exposure. Those two doses were separated only by two weeks and that was not meant to imply that we believe the dosing schedule in humans is going be every two weeks.

Rather we think it's going to be closer to a month. We were just trying to find what an effective dose might be in the chimp in that study. So we are in the Phase 2a we're looking at one mg per kg and two mg per kg. We believe that those are both effective doses. Keep in mind that that chimp was extremely viremic and antigenemic, much more so than we expect to see in humans and so it was a much higher bar in that animal than we will see in humans.

And second, that animal had a mutant form of HBV that was a mismatch for one of our two sequences. Now it's not clear what the effect of that is. It could have been that one of that part of our drug was less effective than the other. But for those reasons we believe that one and two mgs per kg will be effective in people. Now regarding the eth antigen levels, Bruce do you want to comment on those levels in the Chimp?

Speaker 5

Right. They were very high. And our expectation, Thomas, would be that they will probably be on the orders of two to three logs lower in the patients and maybe some even lower than that. But it's a little bit hard to predict. We'll see a considerable amount of variability in S antigen levels in this patient population, But we would expect them to be quite a bit lower than they were in the chimp.

Speaker 6

And just to follow-up, when you include all of these various factors, the difference in the doses and the difference between chimps and humans and the mismatch and the surface antigen baseline, what do you think is a reasonable expectation for what we could see out of the single dose study in terms of surface antigen effects?

Speaker 2

What we are looking to get is about a log of knockdown that would last around a month. We believe we can get that in the one to two mg per kg range. But if we can't, we believe that we could amend the protocol in Hong Kong and go higher. The Phase one was quite clean and we expected that should those data be reproduced in the Phase 2a that we could probably go higher should we need to. But that's sort of our bogey.

Now it's not clear that we need to be that good. For instance, you probably recall in the Chimp with F antigen we got somewhere in the 85 or so percent knockdown, so less than a log. But that was sufficient to initiate this process that we believe was immune activation or immune reactivation. So that was even though we would like to see a log in humans, that 85 so percent at least in this one individual seem to be enough to start that cascade of events that under chronic dosing could lead to a functional cure.

Speaker 6

Okay, great. Thanks.

Speaker 2

You're welcome.

Speaker 0

I apologize. We do have a question from Wei Li.

Speaker 7

Yes. Actually, I have a quick question about the missed target I have two questions. The first is I saw the Arrowhead did some research on the chimpanzee just for the genotype B. And I know there is a lot of people or patient with genotype C and those are closely related with the liver cancer and more probability with the liver cancer.

So I just wonder, is there any data to support the genotype C? This is the first question. A follow-up is for the genotype C and genotype B, there are two kinds of mutations is a precursor of the basal cell promoters. So is there any difference per your C mean per your comments about for those patients with the basal cell promoter mutations? Thank you.

Speaker 2

Thank you very much. That's a very astute question. We designed as you may know ARC520 consists of two siRNA sequences. The reason we have two is to give us or the primary reason to have two is to give us broader coverage across genotypes because we know there are multiple major genotypes in hepatitis B. As you mentioned B and C are two of them.

The chimpanzee we studied happened to be a genotype B. We tested our two sequences or we screened our two sequences with Gene Bank which has something on the order of 25 or so 100 sequences in it of HBV and among the two genotype, among the two sequences together we cover 99.6 or 99.9% of all those sequences. So we should cover, we believe we cover all the primary genotypes with at least one of the two sequences. Now regarding mutations in B or C, again we've got these two sequences and they are both designed in, or they're both generated in highly regions so presumably we should cover the vast majority of individuals. Now that's not to say that we will be equally efficacious in all genotypes.

This is a very difficult virus as you know and it is certainly possible that this therapy could be more or less efficacious in certain genotypes. There's no theoretical reason for that right now, but it's certainly a possibility given that we don't know very much about the virus.

Speaker 0

And this concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Speaker 2

Well, you very much for your attention and for participating in the call today and I look forward to talking to you soon.

Speaker 0

The conference has now concluded. Thank you for attending.