Arrowhead Pharmaceuticals - Earnings Call - Q1 2018

Transcript

Speaker 0

Ladies and gentlemen, welcome to the Arrowhead Pharmaceuticals Conference Call. Throughout today's recorded presentation, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. I will now hand the conference over to Vincent Anizale, Vice President of Investor Relations for Arrowhead. Please go ahead.

Speaker 1

Thanks, Amanda. Good afternoon, everyone, and thank you for joining us today to discuss Arrowhead's results for its fiscal twenty eighteen first quarter ended December 3137. With us today from management are President and CEO, Doctor. Christopher Anzalone, who will provide an overview of the quarter Doctor. Bruce Given, our Chief Operating Officer and Head of R and D and Ken Myszkowski, our Chief Financial Officer, who will give a review of the financials.

We 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 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. These include statements regarding our expectations around the development, safety and efficacy of our drug candidates, projected cash runway and expected future development activities. These statements represent management's current expectations and are inherently uncertain.

Thus, results may differ materially. Arrowhead disclaims any intent and undertakes no duty to provide any or 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 subsequent quarterly reports on Form 10 Q for additional matters to be considered in this regard, including risks and other considerations that could cause actual results to vary from the presently expected results expressed in today's call. With that said, I'd like to turn the call over to Doctor. Chris Franzalone, President and CEO of the company.

Chris?

Speaker 2

Thanks, Vince. Good afternoon, everyone, and thank you for joining us today. It's been a short time since we held our last earnings call for fiscal twenty seventeen year end, but we have already made substantial progress toward our goals for 2018. It is gratifying to see how far we've come in the last twelve months and exciting to see what we are expecting to accomplish in 2018. We are positioned to go from zero to five clinical programs in twelve months and I want to applaud the hard work of all the smart, talented and driven folks at Arrowhead who are making this possible.

Let's begin with the primary goals we have for calendar twenty eighteen. They are: one, complete dosing of our Phase onetwo study of ARO HBV two, complete dosing our Phase I study of ARO AAT three, organize an R and D day to discuss the new pulmonary platform Four, execute a business development collaboration. Five, file a CTA for ARO APOC3. Six, file a CTA for ARO ANG3. Seven, file a CTA for our first inhaled pulmonary program ARO Lung one.

And eight, present data at appropriate scientific conferences. All our programs are based on our TRiM platform which utilizes ligand mediated delivery and is designed to enable multiple tissue targeting while being structurally straightforward. It is a product of more than a decade of research at Arrowhead using targeted drug delivery vehicles for RNAi. TRiM technology enables Arrowhead's RNAi therapeutics to retain the maximal activity achieved with prior generation technologies but with a more structurally straightforward molecule that offers several potential advantages. These include simplified manufacturing and therefore reduce costs, multiple routes of administration including subcutaneous injection and inhaled administration, potential for improved safety, and the promise to bring RNAi to tissues outside the liver, which would represent a big leap forward for the field and a substantial competitive advantage for Arrowhead.

For a more comprehensive presentation on the TRiM platform, you can view the webcast recording of an R and D day that we hosted in September 2017, which can be found on the Investors section of the Arrowhead website. One significant benefit of the TRiM platform is that it allows us to move very fast from an idea to an optimized clinical candidate as demonstrated by the speed at which we were able to advance our two lead candidates. ARO AAT is our second generation subcutaneously administered candidate for the treatment of alpha-one antitrypsin deficiency liver disease and ARO HBV is our third generation subcutaneously administered clinical candidate for the treatment of chronic hepatitis B virus infection. We went from restarting our preclinical models and designing new triggers at the end of twenty sixteen to selecting final candidates, manufacturing drug supply, completing GLP tox studies and filing CTAs just twelve months later. The ARO AAT filing was a quarter ahead of guidance and the ARO HBV filing was two quarters ahead of guidance.

This was the result of monumental effort by our R and D organization but also related to our technology and our corporate culture. The TRiM platform allows us to start and advance new product development programs with extreme precision and we are relentless in our pursuit of speed. We look for every opportunity to shave days, weeks and sometimes even months off the development timelines. Since filing our CTAs, we've had positive interactions with the review committees for both the ARO AAT and ARO HBV programs and only a few questions have been asked. Drug will be available at the sites in March and we believe we are on track to begin dosing this quarter, although of course this will require final regulatory and IRB approval.

For both candidates, intend to use fixed dose levels as opposed to dosing on a milligram per kilogram basis. We hope this will simplify the process for pharmacists at the sites and reduce the risk of dosage error. It also may also give opportunities for simplified commercial dosage forms such as prefilled syringes or other options that make it easier for patients and physicians to administer the products. We have a good amount of experience with these diseases from our prior clinical programs that span 17 countries and included more than 300 human subjects receiving over 800 administrations. Our relationships with influential investigators throughout the world remain strong.

This is partly due to the high quality of science that underlies our candidates and our proven ability to effectively manage complex clinical studies. For both candidates, the first of human studies will evaluate safety, tolerability, pharmacokinetic and pharmacodynamic effects. For ARO AAT, the pharmacodynamic measure will be the reduction of serum alpha-one antitrypsin levels. For ARO HBV, we intend to assess all measurable biomarkers, including S antigen, DNA, RNA, E antigen and correlated antigen in chronic HBV patients. Now let's turn to the other programs in our pipeline.

During our R and D Day last year, we talked about our expanded cardiometabolic pipeline, which includes ARO APOC3 and ARO ANG3. ARO APOC3 is designed to reduce production of apolipoprotein C3 or APOC3, which is a component of triglyceride rich lipoproteins, including VLDL and chylomicrons, and is a key regulator of triglyceride metabolism. Elevated triglyceride levels is an independent risk factor for cardiovascular disease, and severely elevated triglycerides in patients with familial chylomicronemia syndrome, or FCS, can result in acute and potentially fatal pancreatitis. ARO ANG3 is designed to reduce production of angiopoietin lipoprotein three or ANGPTL3, the liver synthesized inhibitor of lipoprotein lipase and endothelial lipase. ANGPTL3 inhibition has been shown to lower serum LDL, serum and liver triglycerides and has genetic validation as a novel target for cardiovascular disease.

Both APOC3 and ANGPTL3 appear to be well validated targets and could be of interest to large pharmaceutical companies with resources to run large pivotal cardiovascular studies and ultimately market such drugs. We believe that ARO APOC3 and ARO ANG3 will be the first RNAi candidates against these targets to reach the clinic and that we will have certain advantages against other potentially competing modalities. As such we believe we are well positioned to attract good partners for these programs when the time is right to enter into collaborations. We should be on track to file CTAs by the end of twenty eighteen for both programs. We are also moving forward with disease targets outside the liver.

The first two of which are ARO HIF2 which is being developed for the treatment of clear cell renal cell carcinoma and ARO Lung1 against an undisclosed lung target. ARO HIF2 is moving toward a planned CTA in 2019 and ARO Lung1 has a planned CTA around the end of twenty eighteen. We have not disclosed much about our lung targeting programs. We have generated some very promising data showing that after inhaled administration we can achieve substantial knockdown of lung expressed targets with long duration of effect. We can foresee a host of new diseases we can attack and multiple targets for each of those diseases.

As such, our TRiM based pulmonary platform feels like a franchise unto itself. This could enable us to drug certain targets in ways that no other company is currently capable. Needless to say, we see substantial value creation opportunities here. Our goal is to have an R and D Day around the middle of the year to discuss that program in more detail and reveal our first disease target. We are really excited about this and we will provide more information about the R and D Day presentation in the coming months.

Having a reliable technology platform like Trim gives us far more product development opportunities than we can currently move forward ourselves. Because of this, one of our key strategic priorities is to seek development partners for some of our programs and retain global rights for others. As I mentioned, we see ARO APOC3 and ARO ANG3 as potentially attractive partner programs at some point. And we see the pulmonary platform as target rich for collaborators as well. In September 2016, we signed our first partnership and collaboration agreement for the TRiM platform with Amgen.

That deal covered two cardiovascular candidates. One against lipoprotein A or LP, is referred to as AMG eight ninety by Amgen. The second, which we call ARO AMG1, is against an undisclosed target. We are thrilled to be working with a company like Amgen and both of these programs are progressing well. ARO F12 is another candidate intended as a partnering opportunity.

It is designed to reduce the production of Factor XII, which may provide benefits in both thrombosis and hereditary angioedema. We previously had it listed on our pipeline chart as available for partnering. We will discuss ARO F12 with interested parties, but we do not currently have a development partner and we do not intend to initiate clinical studies on our own, so we have removed it from our pipeline. We will provide updates of these changes. We see partnering as a way to maximize the value of our technology.

It allows us to focus our internal development resources on our lead candidates and also gives us exposure to additional high value opportunities that may be beyond the reach of a small biotech company. In addition, partnering can be an important source of capital that can supplement our need to access the capital markets. That leads me to our recent equity financing with gross proceeds of $60,400,000 This was a very successful oversubscribed transaction that accomplished several important goals. It strengthened our balance sheet so that we can move our pipeline to key milestones that could represent significant value catalysts. A stronger balance sheet also puts us in a better negotiating position should additional business development opportunities arise.

The equity raise also gave us a much improved institutional investor base. Since we discontinued the ARC-five 20, ARC-five 21 and ARC AAT clinical programs in 2016, we have been substantially under owned by institutions. We still have a lot of opportunities to bring in new funds, but this financing was a good first step toward rebuilding a long term supportive shareholder base. With that overview, I'd now like to turn the call over to Ken Myszkowski, Arrowhead's CFO, who will review our financials. Ken?

Speaker 3

Thank you, Chris, and good afternoon, everyone. As we reported today, our net loss for the quarter ended December 3137 was $13,200,000 or $0.18 per share based on $74,800,000 weighted average shares outstanding. This compares with a net loss of $12,100,000 or $0.17 per share based on $71,400,000 weighted average shares outstanding for the quarter ended December 3136. Revenue for the quarter ended December 3137 was $3,500,000 compared to $4,400,000 for the quarter ended December 3136. Revenue in each period relates to the recognition of the upfront payments received from our collaboration and license agreements with Amgen.

Of the total upfront payments of 35,000,000 all but $1,900,000 has been recognized as revenue to date and the remainder is anticipated to be recognized over the next nine months. Total operating expenses for the quarter ended December 3137 were $17,300,000 compared to $19,300,000 for the quarter ended December 3136. This decrease is primarily due to the discontinuation of our previous clinical trials in late twenty sixteen. Net cash used in operating activities during the quarter ended December 3137 was $14,700,000 compared with net cash provided from operating activities of $10,000,000 during the quarter ended December 3136. The key driver of this change was the $30,000,000 upfront payment received from Amgen in 2016 associated with our ARO LPA collaboration and licensing agreement.

Turning to our balance sheet. Our cash and short term investments totaled $50,700,000 at December 3137 compared to $65,600,000 at September 3037. The decrease in our cash was primarily driven by cash used in operating activities. In January 2018, we completed an equity financing issuing 11,500,000.0 shares, which resulted in $56,800,000 of net cash proceeds to the company. This financing along with our existing cash and short term investments provided us with more than $100,000,000 of liquid assets, which will allow us to continue to advance our pipeline through the clinic for many quarters.

Our common shares outstanding at December 3137 were 74,900,000.0. With that brief overview, I'll turn the call back to Chris.

Speaker 2

Thanks, Ken. We have great expectations for 2018 and believe that the company you will see this time next year will be substantially different than the one you see today. We believe that we are the fastest and most innovative company in the field. And because of this, we are at the door of disruptive opportunities to change medicine and public health in a variety of areas. To both new and existing investors, we think we can accomplish a lot together, and we sincerely thank you for joining us.

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

Speaker 0

Our first question comes from the line of Catherine Zhu of William Blair. Your line is open.

Speaker 4

Yes. Hi. Good afternoon. Well, congrats on the rapid progress, but I just want ask maybe if you could elaborate how come the you could beat your your guidance by that much with the CCA filing and also how the talks studies have been going, including the GLP tox. Apparently that's a very important part which is safety on the new TRiM platform that people are concerned about.

Speaker 2

Thanks Bruce, want take that?

Speaker 5

Sure. Hi Catherine. We sort of had to play perfect baseball. So everything had to go kind of flawlessly with the tox program, everything had to go flawlessly with the manufacturing program. And because of that I think we in the end had to set guidance not necessarily expecting perfection.

We of course internally, most people when they give guidance they necessarily mean kind of the end of the quarter. I think with our AAT guidance we were thinking that maybe we would be submitting our CTA sometime in January or so and with HBV we were thinking maybe in the April time frame and we just were able to, you know, execute in such a way that we were able to beat those guidances with both of those of those CTAs going in essentially between the middle and the December. But we pushed hard to get those in early because we wanted to get into the queue for evaluation, you know, early in 2018. We felt that even delaying into January, we ran the risk of not making it into the the first set of evaluations by the IRBs and and regulatory authorities. So it was worth it to us to really push people very hard and and, you know, do a lot of, you know, work in parallel instead of in series.

And and by doing that, we were able to to achieve pretty extraordinary results.

Speaker 4

Then the tox observation so far?

Speaker 5

Well, know, we're we're comfortable with them. You know, the the final arbiters of tox are always the the IRBs and the the reviewers from a regulatory perspective. But we felt comfortable with our submissions and we continue to feel comfortable, but we tend not to give detailed review of our GLP tox and that's pretty true usually in industry as well I think.

Speaker 2

But we can tell you broadly, look, our confidence in these drugs weren't changed by the GLP tox findings. It was consistent with what we expected. Yes, we weren't surprised.

Speaker 4

And then is it fair to expect some proof of concept data from both the AAC and HBV programs towards the end of the year and potential partnership deals for some other programs during 2018?

Speaker 2

So we're not prepared to give guidance on proof of concept data yet because we still have not yet started dosing patients. Let's get final approval by the IRBs and final approval by the regulatory agencies and let's start dosing patients. And at that point I think we'll be better positioned to give good firm guidance. It is our hope, as I mentioned early in the prepared remarks, that we can finish dosing both of those studies in calendar twenty eighteen. Just give us some time on this and we'll provide guidance once we start dosing.

What was the other question? Partnerships. Partnerships, yes. Similarly there. Look, I think that we have a good chance of getting an important collaboration done this year.

But you really can't give guidance on that because that's out of our control. I think what is within our control, building up this Trim platform, demonstrating that it is active and that it appears to be well tolerated. We're doing all those things and we feel good about it and I think that we have some targets that are potentially interesting to partners. So everything we can do we're doing and now we'll just see if we can bear some fruit this year. It is certainly our hope that we can do that.

Speaker 4

You.

Speaker 2

Sure.

Speaker 0

Thank you. Our next question is from the line of Keaye Nakae of Chardan. Your line is open.

Speaker 6

Yes. Thanks. With respect to potential partnerships, especially for, the cardiovascular indications, is the, the numbers you've disclosed from the Amgen partnership, is that what we should be thinking about if you're able to partner those given the fact that you expect to file the CTAs around the end of this year?

Speaker 2

Yes. So I appreciate that question. Thanks very much. It's not one that I can answer. Here's what I think.

I think that APOC3 and ANGPTL3 are good targets. I think they're good validated targets that should be of interest to pharma and that they could be attractive targets for partners. I believe that. When can we get a partnership done? Can we get a partnership done?

I don't know the answer to that. And so speculating on timing of that is is not something that I'm going to do at this point. Similarly, really can't speculate on should that happen, I really can't speculate on what the economics would be. Some of that will depend upon the time of partnership, of course. The longer we hold on to these potentially, the more valuable they could be.

So there are just too many variables there, unfortunately, to really speculate.

Speaker 6

Okay. That's all

Speaker 4

I have. Thanks.

Speaker 2

Okay. Thank you.

Speaker 0

Our next question is from the line of Madhu Kumar of B. Riley FBR. Your line is open.

Speaker 7

Hey, guys. Thanks for taking my questions. So my first question relates to the APOC3 program. So looking at the indication space for APOC3, how much do you think you would pursue the kind of orphan indications that some of your competitors have gone pretty far down the development pipeline in right now versus the kind of bigger ticket cardiovascular indications?

Speaker 2

Yes. So let me take a first crack at that. One of the things we like about APOC3 is that it gives us multiple regulatory pathways. If we were to hold on to this for ourselves, it would clearly make more sense for us to focus on orphan indications. Whereas if a partner were to take this, it may make more sense to go after the large cardiovascular markets and go ahead and invest in a large outcome study.

I think ultimately which route we take will depend upon who takes us forward, I think.

Speaker 7

Okay. Thanks. And remind me, did Amgen were they was were they shown c three and angiopoietin, like, three as part of the partnership?

Speaker 2

No. No. So we started talking to Amgen quite some time ago about Lp and about the undisclosed targets. That was before we had any program in ANGPTL3 or APOC3. So these are relatively new.

Speaker 7

And one last one. Will there remind me if I missed this. Will there be five twenty or 05/21 data kind of follow on data at Diesel?

Speaker 5

Yeah. I think we may see some 05/20 data. I don't think we're gonna see 05/21 data just because, you know, that study really got stopped so early. You know, what data we had, you know, got presented, I think it must have been EASL last year when we presented what data we had. But it was quite sparse.

You know, enough to be very tantalizing But but we don't have more 05/21 data sort of, you know, hiding out some place. We pretty much, you know, showed everything we had.

Speaker 7

Okay. Great. Thanks for taking my questions. Have a great weekend, guys.

Speaker 5

Thanks very much. You too. Take care.

Speaker 0

Thank you. And at this time, I'm showing no further questions. I'd like to turn the conference back over to Chris Anzalone for closing remarks.

Speaker 2

Thanks very much, everyone. Thank you for joining us on our call today, and we will see you next quarter.

Speaker 0

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.