Arrowhead Pharmaceuticals - Earnings Call - Q2 2014
May 6, 2014
Transcript
Speaker 0
Ladies and gentlemen, welcome to the Arrowhead Research Fiscal twenty fourteen Second Quarter Financial Results 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 call over to Vincent Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, Vince.
Speaker 1
Thank you, operator. Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its fiscal twenty fourteen second quarter ended March 3134. 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 provide a brief overview of the quarter and will then open up the call to your questions. Before we begin, I would like to announce that we have scheduled an Analyst R and D Day for June 19 in New York City. At this event, Arrowhead management and a panel of external disease area experts will discuss our next clinical candidate and provide a corporate update. Space will be limited, so any research analysts and institutional investors interested in attending should RSVP to us at iraerores.com.
A webcast of the event will also be available on our website for those unable to attend. For today's call, I would like to remind you that comments made may contain certain forward looking statements within the meaning 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 facts, 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 to Doctor. Christopher Anzalone, President and CEO of the company. Chris?
Speaker 2
Thanks Vince. Good afternoon everyone and thank you for joining us on our call today. The fiscal second quarter and the period since our last conference call have been extremely productive for Arrowhead. Our priorities can be thought of in three camps and we made substantial progress in each of them. They are one, progress with our lead candidate ARK520 against chronic hepatitis B infection two, progress on our core GPC platform and the pipeline of new drug candidates it enables and three, access to capital and talent.
Let's take a closer look at each of these and begin with ARK520. As we have said in the past, ARK520 remains our highest priority and primary near term value driver. Over three fifty million people or roughly one in twenty worldwide are thought to have chronic HBV infections and there is no cure. This has been a much difficult virus to treat than hepatitis C in part because blocking viral replication is not sufficient to clear the virus. High levels of surface antigen or S antigen can immunosuppress a patient with chronic HBV infection even when viral replication is blocked to undetectable levels.
Many believe that substantially decreasing S antigen levels could de repress the immune system and enable it to clear the virus. But to date, there has not been a way to do this consistently. Our published nonclinical studies in rodent models as well as a chimpanzee with chronic HBV infection suggest that ARK520 is capable of rapid and deep productions of S antigen levels in addition to all other HBV gene products. I'm not aware of any published reports that rival our data. As such, we believe we have a powerful drug candidate and substantial first mover advantage in this large unmet medical need.
We intend to retain and even expand this advantage with well thought out clinical studies and good execution. As we've discussed in the past, our Phase I clinical study began in July 2013 and planned dosing was completed just three months later. It indicated that ARK-five twenty was generally safe and well tolerated at all doses studied. This was followed by a Phase IIa study in patients with chronic HBV infection, which started dosing at the March 2014. The study is planned to enroll 16 E antigen negative chronic HBV patients in two dose groups with patients receiving either ARK520 or placebo in combination with entecavir.
We will follow patients until S antigen levels return to baseline or within 20% of baseline. In addition to generating more safety and tolerability data, this study will give us depth and duration of S antigen knockdown, which will be used to design the upcoming multi dose studies. We announced that the first cohort of eight patients had been fully enrolled and dosed in just over a week. We have received DSMB approval to move into our second cohort and expect to begin dosing shortly. Patient accrual has been very fast, which is encouraging and keeps us on pace to have top line results to report in the third quarter.
We expect this to be in the form of a press release, demonstrating consistent S antigen reduction in humans would be an exciting outcome and a first for the field. Therefore, we hope to report a more complete dataset at a scientific conference or peer reviewed publication. People have inquired as to whether we would release any interim data before the Phase IIa is complete and we will not. The study is blinded and it would be inappropriate for us to communicate any hard data or even perceived trends while the trial is ongoing. We are happy to provide information about the study design and expected timelines and we thank you for your patience.
In addition to the Phase 2a, we remain on schedule with long term GLP toxicology studies, drug manufacturing, protocol development, site and investigator recruitment and other activities needed to support the Phase 2b studies planned to begin in the second half of this year. As we've discussed in the past, these studies will be multinational and we would expect to start seeing functional cures with repeat dosing of ARK-five twenty. As you can see, our progress with ARK-five twenty has been rapid and consistent. Thus far, we have met or beaten all of our guidance and we expect this to continue. The positive safety data from the Phase one study derisks ARK-five twenty because until a candidate is administered in humans, there's no way of knowing if a safety signal will emerge that was not predicted in animal models.
The data thus far suggests that we have a safe and well tolerated drug candidate. Regarding efficacy, we have generated and published data indicating deep and durable knockdown across multiple animal models, including non human primates. This includes sequences in ARK520 as well as sequences against other liver targets in order to better understand efficiency of the DPC delivery system. Because of the reliability of RNAi as a mechanism and the highly predictive nature of non human primate data for human knockdown, we expect to see deep and durable S antigen knockdown in the Phase 2a. Should we see that and report it next quarter, it will be another risk removed from the program.
At that point, it would appear that we have a safe and effective drug candidate and the final hurdle would be to demonstrate that reducing S antigen levels I'm sorry, and the final hurdle would be to demonstrate that reducing S antigen levels leads to functional cure of HBV. The multi dose Phase 2b studies will get that question. So we expect to be looking for functional cures next year. These are exciting times indeed. Let's now turn to the broader DPC platform and pipeline.
In addition to being an exciting candidate, ARK520 serves as a proof of concept for the DPC delivery technology as it relates to liver targets. If we show the ARK520 safely and effectively knocks down HBV gene products, it is highly likely the DPCs will be capable of safely and effectively knocking down other targets. This is important as we expand our pipeline of RNAi therapeutics and also speaks to the leverage we see across our development programs. The successful Phase one went a long way to derisk the platform from a safety standpoint. The fact that we saw no evidence of any end organ toxicity at any dose gives us confidence that we prepare as we prepare multiple new candidates.
Phase 2a study top line readout next quarter will more fully derisk the platform by demonstrating knockdown efficiency. Once both of these are firmly established, see enormous opportunities to create value by aggressively expanding our pipeline. This process has begun and we nominated a clinical candidate indication for which we plan to file an IND in the fourth quarter. As Vince mentioned, we will hold an Analyst Day on June 19 in New York City to discuss this candidate. During the event, we will provide anticipated timelines for the candidate and present non clinical data.
A panel of key opinion leaders will present additional information about the pathophysiology, patient populations and current treatments for the disease. This candidate is an exciting next step for us as we build out the pipeline, but it is only one of the targets we're working on. We are making substantial progress with additional undisclosed programs that we hope to provide guidance on in the future. These include liver as well as extrahepatic targets and DPC formulations for both IV and subcutaneous administration. All this work on ARK-five 20 and expanded pipeline requires resources both human and financial.
We have built up both of these recently. During the quarter, we added staff from the bench scientist level to VP level in various key areas including manufacturing, toxicology, chemistry, biology, quality assurance, regulatory and clinical operations. These additions ensure that we can support rapid clinical development of ARK-five twenty in our next clinical candidates. In addition, they also allow us to continue to develop PPCs. In February, we strengthened our balance sheet through an equity financing with gross proceeds of approximately and $20,000,000 This capital allows us to fully fund ARK-five twenty into Phase III and gives us the resources we need to push additional candidates into the clinic and through proof of concept over the next few years.
We now have multiple years of cash to support our pipeline growth and are not dependent upon near term pharma partnerships that can limit upside potential for our shareholders. It also enables us to expand the scope of our upcoming ARK520 Phase 2b studies. We plan to conduct multiple studies that answer key questions about the response of different patient populations to ARK-five twenty. We will discuss more about the Phase 2b studies designs later in the year, but it gives us great confidence to know that we are properly resourced to design the development program in a way that generates a comprehensive understanding and data package for ARK-five twenty's activity. With that update, I'd now like to turn the call over to our CFO, Ken Biszkowski to review our financials for the period.
Ken?
Speaker 3
Thanks, Chris, and good afternoon, everyone. Reported earlier today, our net loss attributable to Arrowhead for the three months ended March 3134 was $13,900,000 or $0.31 per share based on $4,044,300,000.0 weighted average shares outstanding. This compares with a net loss attributable to Arrowhead of $6,800,000 or $0.41 per share based on 16,500,000.0 weighted average shares outstanding for the three months ended March 3133. Total operating expenses for the three months ended March 3134 were $11,300,000 compared to $5,400,000 for the three months ended March 3133. Research and development related expenses were $5,200,000 while G and A costs were $1,300,000 The increase in operating expenses compared to the year ago period are due to ARK-five 20 clinical trial, related ongoing toxicology trials and drug manufacturing costs in preparation for Phase two clinical trials.
R and D compensation expense is higher due to increased headcount as compared to the prior year. Net cash used in operating activities for the first six months of fiscal twenty fourteen were $14,700,000 compared with $8,300,000 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 at March 3134 was $142,800,000 Our cash resources also include excess cash invested in investment grade bonds maturing in the near future. Bonds maturing in less than twelve months are classified as short term investments totaled $17,800,000 at March 3134.
Bonds maturing in more than twelve months are classified as long term investments and totaled $34,000,000 at March 3134. Including short and long term investments in fixed income securities, our cash and investments balance was $194,700,000 at March 3134 compared to twenty nine point eight million dollars at September 3033. The increase reflects the financings completed this past February and October. Additionally, the company received cash inflow of $8,000,000 from the exercise of warrants and stock options. Our common shares outstanding at March 3134 were 51,900,000 At March 3134, there were also 21,000 shares outstanding.
These preferred shares are convertible into 5,600,000.0 shares of common stock. Common shares outstanding including the conversion of our preferred shares would be 57,500,000.0. With that financial overview, I will now turn the call back to Chris. Thanks, Ken.
Speaker 2
We've made good progress in all areas and are quite pleased with our execution of the past quarter. Unfortunately, weakness in the biotech market generally and RNAi companies in particular over the past several weeks have meant that this progress toward value creation has not been reflected in our stock price. We are focused on providing growth to our shareholders, but sometimes market moves distort value creation in the short term. We have no control over that. What we can control is the quality of our science, the choices we make to go after high value unmet medical needs, the quality of our clinical programs and the extent to which we execute.
On all of these fronts, we have excelled. So we have to trust that the market perception will catch up with us just as it did last year. Our lead program continues to move rapidly. Our pipeline is filling out our core technologies increasingly derisked and we have a very strong balance sheet. Needless to say, we are positioned exactly where we believe we need to be for durable value creation.
Importantly, we will have regular and impactful events throughout the remainder of 2014 to demonstrate our progress. These include the following. Throughout May and June, we will present a major investor and scientific conferences, including the Deutsche Bank Healthcare Conference this week, Tides next week and Jefferies, Wells Fargo and Piper Jaffray events in June. On June 19, will hold an Analyst Day to discuss our next clinical candidate. In the third quarter, we expect to release top line results from the Phase 2a study of ARK-five twenty.
In the fourth quarter, we anticipate that multi dose Phase 2b studies will begin. Also in the fourth quarter, we expect to file an IND for our next clinical candidates. And lastly, we will provide updates on undisclosed programs and technological capabilities that we are targeting for 2015. I'd now like to open the call up to your questions. Operator?
Speaker 0
Thank you. And our first question comes from Thomas Wei from Jefferies.
Speaker 4
Just a couple of questions on the Hong Kong study. Just to clarify, in your press release that you're going to put out in the third quarter, will it actually contain the magnitude of the surface antigen reduction that you see in arm?
Speaker 2
Yes. Thanks, Dallas. Yes, that is our intention. We will be describing the depth and duration of S antigen knockdown in that press release, that's correct.
Speaker 4
And how would you set our expectations on what sort of magnitude is reasonable to expect from a single dose here?
Speaker 2
Yes. So we've been very upfront about this, maybe to our detriment, but we expect to see a log of knockdown and that's our goal. Given the data with interferon, the best we can understand is that somewhere around a log of knockdown may be important to get to eventual S antigen loss and a functional cure. So that's what we expect, about a log of knockdown will last Now if we don't get there with two mgs per kg, we are prepared to amend the protocol and go up three mgs per kg because we'd like the flexibility of having a log of knockdown.
So I think fair to expect that is our goal at least.
Speaker 4
And if that were to be the case where it falls slightly short, I guess I'm curious if you were if you fell slightly short and you thought that a three mg per kg dose was important to pursue, how does that impact the timing of the start of the Phase 2b study? Ultimately, wouldn't you be able to get there by giving multiple doses anyways? I'm just curious how you think about this single dose data relative to the multi dose study?
Speaker 2
Yes. So you're exactly right. If we did fall slightly short of that, we believe we could get there by dosing more often than once a month or whatever we decide on this. And so you're right about that. But what we want to do is we want to give the Phase 2b enough flexibility to get around to ask a lot of questions.
So the more knockdown that we can demonstrate with a single dose, greater flexibility we've got. So it's for that reason that we really like to make sure that we can get to a log of knockdown. Now regarding timeline, we don't believe that if we did have to go three mgkg that that will affect the timeline. We still expect that we can release top line data in the third quarter and that we can start the Phase 2b on time. The limiting factor there really right now is finishing the long term tox studies, long term GLP tox studies that need to support the Phase 2b.
And so we are on track to start that in the second half of the year and whether we stop at two or go to three mix per gig, we think we can still make that.
Speaker 4
Great, thanks. That's very helpful.
Speaker 2
Sure, you're welcome.
Speaker 0
Thank you. Our next question comes from the line of Michael Yiyi with Capital Markets. Your line is open.
Speaker 5
Hi, thanks. I got knocked off briefly, so I don't know if this was answered. But can you perhaps give some scenarios on the Phase 2b, still get this data? Obviously, appreciating what you just answered on the last question. I mean, multiple doses, how long in combination with entecavir?
Maybe you could walk through some of that and when you would actually see data on that? That's like a mid-fifteen event if you start all this on time?
Speaker 2
For the Phase 2b studies?
Speaker 5
Yes, correct.
Speaker 2
I'd like to give you guidance on that, but we just can't at this point because we just don't know. We will learn a lot over the next several months. We'll learn how long we can keep as knockdown, how deep it goes. And so my thinking is that it's hard to give guidance on when we might have data for the Phase 2b until we have that. My sense is that we'll start at least some of the Phase 2b sometime in the second half of this year and that we could have some data in the middle of twenty fifteen,
Speaker 6
but just
Speaker 2
we can't really commit to that yet until we have a better understanding about what we are until what the S knockdown curve looks like.
Speaker 5
But in terms of the types of arms, given your base case, how many different arms and what are we looking at? How long is dosing? Talk a little bit about that when you start later this year.
Speaker 2
Sure. Bruce, do you want to address those questions?
Speaker 6
Yes, sure. I mean our thought process has been that the we would probably run a classic sort of highly controlled multi arm study that would include a nuc only arm and that would be either entecavir or tenofovir. You know, we'll just stratify between the two, but we view them as equivalent clinically. So a NUC only arm and then an arm that was a NUC plus a lowish dose of ARK-five twenty and then NUC plus the higher dose of ARK-five twenty. And we expect, you know, that the controlled, you know, that the highly controlled studies to probably, you know, have twelve weeks of dosing, you know, that may be, you know, basically three monthly doses, for instance, or, you know, something along those lines.
And then we, of course, would follow after the last dose. So they probably would be something like sixteen weeks duration. But it's our expectation that those patients would then roll right into a long term follow-up that would allow dosing out to at least a year. And that would include probably the new Gonley arm as well getting to go into that study. We of course have no idea if we can produce this profound knockdown in surface antigen.
We have no idea how long we have to do that before the immune system can respond. Our best guess is it's probably, longer than just a few months, but we're hopeful that it will be maybe something like half a year or it might even be a year of therapy. We just don't know yet.
Speaker 5
Right. So to clarify that, you said roll it into a long term follow-up. You said you'd follow them for sixteen weeks. So you follow them for four months and then just allow them to just get more dosing if they relapse. Is that what you mean?
Speaker 6
Well, no, our expectation is based on what we've seen so far of course with interferon which we have no idea whether that really is fully predictive here. It oftentimes requires, you know, some time, with the surface antigen levels down for the immune system to come back. So we would keep dosing the patients during that long term extension, and of course watch what was going on with all of their viral parameters and be looking for the occurrence of S clearance and possibly, seroconversion as well. But you know, at this point we're kind of on the frontier. So we don't know how long it will take to produce an SCLAR at state and we're very interested in finding that out in Phase II.
So we have designed the Phase II program to help us answer that question, which I think is Last very
Speaker 5
clarification, I promise. So therefore you do not expect to see an ALT flare antibodies on this one dose Phase 2a, correct?
Speaker 6
Well, that'd be a real surprise. I mean that would be a very happy surprise, but that's asking an awful lot. That's of the lottery ticket result.
Speaker 5
Perfect. Thank you.
Speaker 0
Thank you. Our next question comes from Ying Huang from Barclays. Your line is open.
Speaker 7
Hi, it's actually Catherine for Ying. A couple of quick questions. First, besides ALT and AST and S antigen levels, are you collecting any other data in this Phase 2a trial? And then can you give us any thought of what we should expect in terms of S antigen reduction after twelve weeks?
Speaker 2
Bruce, do want address those?
Speaker 6
Sure. So we are measuring other parameters in those patients that in the 2b that would be e antigen positive. We'll be looking at what's going on with e antigen as well. These patients will for the most part be fully suppressed with respect to HBV DNA, so we wouldn't expect to really be able to see anything there. But in those patients who are low but not fully suppressed, we would expect to see further suppression with the addition of ARK-five twenty and that's something that we will be measuring.
So all of that's part of it. I think one of the interesting questions regarding the surface antigen is with multiple doses will we see it ratchet down even further and I think that's a very real possibility. Thomas Way asked at the beginning about single dose, but I think with multiple dose in fact we may see an additive effect and the surface antigen may fall further than it does with a single dose. And that's one of the things that we'll be looking for very carefully. And that again may be very helpful to the immune system to have that kind of derepression.
So we'll be looking at all of that and, you know, the quantitative surface antigen levels over 16 I think are going to be, an important parameter and something that we're particularly interested to see.
Speaker 7
That's for the Phase 2b?
Speaker 6
I'm sorry?
Speaker 7
That's for the Phase 2b?
Speaker 6
Yes, that's for the 2b.
Speaker 7
What about the 2a? Are you collecting anything else?
Speaker 6
Well, you know, the 2a is an e antigen negative patient that are both depressed with respect to DNA. So there's not a whole lot more, you know, to measure there, you know, which was kind of the point of doing it in E antigen negative patients. It makes for a pure experiment where only one variable is moving.
Speaker 7
Got
Speaker 6
it. So that's by design.
Speaker 7
Okay. And then on the other question of reduction after twelve weeks?
Speaker 6
So you're asking, you know, after a single dose?
Speaker 7
Yeah.
Speaker 6
Well, we'll follow SA antigen until it gets back to baseline or at least within 20% of baseline, as, you know, as far out as say three months. So, you know, we don't expect it to stay down that long but you know, we don't know what we're going to see until we see it. But generally, you know, the thought process is that, you know, RNA that loads into risk, you know, tends to persist about a month. So it seems that it would be somewhat unlikely, you know, for it to go a whole lot further than that. But until we get there, we don't know.
Speaker 7
Okay, great. Thank you.
Speaker 0
Our next question comes from the line of James Gash, who is a Private Investor. Your line is open.
Speaker 8
Yes. Regarding the 2A, will there be any different rates of infusion or will that all be the same?
Speaker 2
Those will all be the same. Bruce, you want to talk about the infusion rate there?
Speaker 6
Well, yes, the rates will be the same. We're infusing at a rate of about ten milligrams per minute and they'll be the same. But of course, the doses are different on a milligram per kilogram basis. So, you know, the about six minutes or seven minutes to infuse depending on the weight of the patient. And a two mg per kg dose will, you know, probably tend to take something more on the order of ten minutes.
But the rate of infusion is the same.
Speaker 8
Do you hold out the possibility that a two mgkg at a slower rate of infusion might get the job done before you go to three mg per kg?
Speaker 6
You mean give deeper knockdown?
Speaker 8
Yes.
Speaker 6
I don't think so. I don't I don't think that would know, that that would really have much of an impact unless it was a really slow infusion maybe you could theoretically wonder, but I don't think at any sort of reasonable rate.
Speaker 8
Okay. Thank you. The next question is basically a clarification of outstanding shares, common shares.
Speaker 2
Ken?
Speaker 8
What's the number on that?
Speaker 3
Sure. So our outstanding shares at March 31 were 51,800,000.0. So that does not include the preferred shares that are outstanding, which would add another 5.6 when they are converted to common shares.
Speaker 8
Can you comment? Has there been any conversion?
Speaker 3
Yes. During year, there have been about $7,600,000 of preferred shares that have been converted to common. So there are remaining about 21,000 shares of preferred that are out there. And as I say, when those are converted, that will be another 5,600,000.0 shares.
Speaker 8
Okay. I understand that. So more than half have converted.
Speaker 3
That's right.
Speaker 8
Okay. Thank you, gentlemen.
Speaker 2
Yes. Thank you.
Speaker 0
Our next question comes from the line of Grant Bain from SAC Investment Research. Your line is now open.
Speaker 9
Hi, guys. Congratulations on a strong quarter. Just a quick question about the Phase 2b trial. Do you have a rough estimate of the cost to show you the Phase 2b trial?
Speaker 6
So that's a good question.
Speaker 2
We've not given guidance on that at this point, part because we have not set on the number of studies we're going to do. As we mentioned in the prepared remarks, one of the important things about raising the money that we did in February is that it gives us flexibility to do a relatively large number of small pilot studies to get at various questions with respect to how ARK-five twenty works with different patient populations. So I suspect that we'll give more guidance on the Phase 2b later this year once we get into it or once we're approaching it. And at that point, we can give you probably a better understanding about what some of those studies might be and then an overall cost associated with it.
Speaker 9
Okay. But you have enough cash right now for the Phase two, right?
Speaker 2
We have plenty of cash for Phase two. In fact, what we said is we've got enough cash get us into a Phase three for ARK-five twenty as well as push additional candidates through clinical proof of concept. So we are not we are really not cash constrained right now as it relates to the development ARC-five
Speaker 9
twenty. This
Speaker 0
concludes the question and answer session. I would like to turn the conference back to Chris Anzalone for any further remarks.
Speaker 2
Thank you very much for your interest and we look forward to telling you more on June 19 at the Analyst Day.
Speaker 0
Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may all disconnect. Everyone have a great day.
