Arrowhead Pharmaceuticals - Earnings Call - Q2 2017

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 Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, Vince.

Speaker 1

Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its fiscal twenty seventeen second quarter ended March 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, who will discuss our pipeline and Ken Myszkowski, our Chief Financial Officer, who will give a review of the financials.

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, actual results may differ materially.

Arrowhead disclaims any intent and 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 Narrowhead'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 presented expected results expressed in today's call. With that said, I would like to turn the call to Chris Anzalone, President and CEO of the company. Chris?

Speaker 2

Thanks, Vince. Good afternoon, everyone, and thank you for joining us today. We had a highly productive quarter and continue to push our cardiovascular partnership with Amgen forward rapidly, while also advancing our own pipeline of new RNAi based medicines toward the clinic. 2017 is an important building year for Arrowhead, and we continue to be laser focused on execution. We simply must be fast and we must be good.

That means hitting aggressive time lines and performance goals on both research and clinical development fronts and demonstrating that we have a fully enabled RNAi therapeutics platform. Broadly speaking, that platform includes the following: one, a new subcutaneous or SubQ administered liver targeted delivery system. This is a family of proprietary single molecule structures where clusters of liver tropic and acetylglactosamine or Nag ligands are conjugated directly to highly modified RNAi triggers two, our extrahepatic delivery platform, which includes multiple designs and structures depending upon the type of extrahepatic tissue that is being targeted And three, various RNA stabilization chemistries and a set of sophisticated design processes that enable rapid development and optimization of RNAi triggers that can achieve deep and durable gene silencing without the need for an active endosomal escape component, such as our prior DPC delivery system. This last component is more than just proprietary technologies. It is also about a team that has demonstrated its ability to rapidly innovate and meet aggressive timelines.

This was certainly true with the discovery and development programs of prior generation candidates, ARC-five 20, ARC-five 21 and ARC AAT, and we have only gotten better. It is impressive how quickly our team can now go from idea to screening to optimization and ultimately to lead candidate selection. Then our program management, regulatory and clinical development teams can take the next steps of designing and executing efficient manufacturing campaigns, GLP toxicology studies, regulatory submissions and clinical studies. We appreciate that much of our current work is happening behind the scenes with little visibility to those outside the company. Prior to discontinuing our clinical programs that utilize our DPC EX1 delivery vehicle last year, we were accustomed to having multiple clinical candidates that would read out at various times.

So without current near term clinical readouts, how do we demonstrate to you, our shareholders and analysts, all the breakthrough work going on internally at Arrowhead? We think the best way to do this is through an analyst R and D day, during which we can provide a comprehensive view into what we have accomplished and a clinical timeline for future work. Our current plan for the event is to discuss the platform and our development process generally and present preclinical data for multiple pipeline products. We also intend to provide some background information on the disease areas and give specific guidance about when we anticipate that our clinical programs will begin. We will provide more information when the data is finalized, but expect this Analyst R and D Day to occur in September.

We have substantial data even now. At that point, we will indeed have much to discuss across multiple programs. That may seem a ways off, but it's important to note that for hepatitis B and for alpha-one liver disease, we are not starting from scratch. Indeed, our extensive prior experience gives us confidence in the potential of our next generation candidates, ARO HBV and ARO AAT. First, we believe there is now clinical validation for the use of RNAi against those two diseases, providing an important proof of concept that companies typically do not have at this stage of development.

Second, our preclinical work in both diseases and particularly in HBV, give us a level of understanding of the diseases and RNAi based interventions that will inform our clinical programs and represent real competitive and strategic advantages. Third, we have extensive experience running sophisticated multinational clinical studies in both areas and treated nearly three fifty people across 17 countries between our prior HBV and AAT programs. We have deep relationships with the relevant investigators, experts and foundations, and we are involved in the appropriate endpoint committees. This level of expertise and engagement is invaluable and will enable us to move quickly and efficiently once we reenter the clinic. Finally and more broadly, RNAi is increasingly seen as a reliable biological mechanism.

We believe that if you can get a potent RNAi trigger to the right tissue type and the right intercellular space in humans, then you can reasonably expect target gene knockdown that is, for the most part, consistent with that seen in rodent and primate studies. That has generally been our experience with ARK520, ARK521 and ARK8T and consistent with results from others in the field. We are eager to get candidates that utilize our next generation subcu format into the clinic to confirm this same relationship holds with our new platform. We hope to essentially pick up where we left off with HBV and ALPHA-one liver disease and move forward, on other diseases rapidly and with confidence. With that overview, I'd now like to turn the call over to Doctor.

Bruce Given, Arrowhead's COO and Head of R and D to discuss our pipeline. Bruce?

Speaker 3

Thank you. Good afternoon, everyone. As Chris mentioned, we have a great deal of experience with HBV and alpha-one liver disease from work that we did with ARK-five twenty, ARK-five twenty one and RKAT. At the recent EASL International Liver Conference, we presented more of our clinical data from all three programs. We believe that these clinical data collectively with additional nonclinical data that we have reported on previously provide validation for the use of RNAi against HBV and alpha-one liver disease.

It was interesting to see how well received the data were by many of the liver experts in attendance. We have shown that RNAi therapeutic can do exactly what it is designed to do, which is knock down the production and release of specific proteins involved with respective diseases. This is important proof of concept to support the continued advancement of our ARO HBV and ARO AAT. Arrowhead's follow on product candidates that utilize the company's next generation subcutaneous format. I would like to give a bit of detail about the specific data that was presented, and I'll start with HBV.

For ARK-five twenty, we presented multiple dose data for the HepARC2001 open label extension study. In this study, treatment naive chronic HBV patients who previously received a single IV dose of four mgs per kg ARK520 and started daily entecavir in the same day were eligible to roll over into a long term extension. Eight patients, five E antigen negative and three E antigen positive, were enrolled to receive four mgs per kg ARK520 once every four weeks while continuing their daily entecavir. Knockdown of viral DNA, S antigen, correlated antigen and E antigen in E antigen positive patients was measured at regular intervals. In naive E antigen positive patients where we now know to expect the best results with ARK-five twenty, multi dose treatment with ARK-five twenty further reduced S antigen levels beyond those seen with a single dose.

The maximum reduction observed was 3.1 logs with a mean maximum reduction of 2.2 logs. As expected based on our groundbreaking CHIMPENZIE work, E antigen negative patients showed lower reductions in S antigen. The maximum reduction observed was 1.4 logs with a mean maximum reduction of 0.7 logs. The responses in both of these groups are quite consistent with findings from our chimpanzee study, demonstrating that a higher fraction of S antigen was produced by integrated DNA as opposed to cccDNA in those who were negative for e antigen. These findings led us to develop ARK-five twenty one to address patients that were less cccDNA driven.

It included an RNAi trigger that was designed to be active against S antigen produced by integrated DNA. And thus we predicted that ARK521 would potentially show higher levels of S antigen reduction in E antigen negative patients. The data presented at EASL from a phase onetwo study of ARK-five twenty one, although incomplete due to the discontinuation of the clinical program, were consistent with this prediction. And provide clinical validation for the need to address surface antigen from both sources. These as well as other findings were important and help us in the planning and development of ARO HBV.

As a part of EASL and in satellite conferences, HBV remains a growing focus. It was rewarding to see the centrality of Arrowhead's work with ARK-five twenty in many presentations and how the field has so widely embraced the concepts regarding the importance of integrated DNA. It has caused the entire field to rethink the disease and consider the implications of these findings for future regulatory approval endpoints. This leadership by Arrowhead continues to provide us with broad access experts. Turning to the liver disease associated with alpha-1A trypsin deficiency.

We also presented data from a phase 1A1B study of Arc AAT at EASL. In this study, 54 healthy volunteers and 11 patients with AATD were enrolled. Healthy volunteers received escalating doses of Arc AAT from zero point three eight to eight mgs per kg, while patients received two or four mgs per kg prior to discontinuation of the program. At the highest dose, a maximum reduction in serum AAT of 89.8% was observed, which we believe represents deep suppression of the liver produced AAT protein. Recall that we believe around 10% of production is from outside the liver.

At equivalent doses, patients with AATD and healthy volunteers responded similarly in terms of depth and duration of AAT protein knockdown. These results were presented in the heavily attended late breaker session at EASL. And there was enthusiasm amongst this audience to see our return to clinical testing. We believe these results together with those from nonclinical studies presented at AASLD last fall that showed that treatment with ARK AAT over time may improve liver health and prevent further damage provide solid proof of concept for the use of RNAi therapeutic against alpha-one liver disease. We continue to use these learnings as we advance ARO AAT towards the clinic.

Now I wanted to briefly mention the ongoing cardiovascular collaboration we have with Amgen, and specifically the ARO LPA program. If you recall, that was the first publicly disclosed program to use our new subcu delivery. While we cannot give guidance on program timing, we can say that the pace of the collaboration has been rapid and Amgen has been a wonderful partner to work with. We see great potential there as well as in the undisclosed target that we are working on with them. In addition to ARO HBV, ARO AAT, and ARO LPA, there are several other programs working on using both our liver targeted subcu technologies and our extrahepatic delivery.

We expect to provide more color on some of these programs later this year as well as the technology platforms that enable them. All of us in the R and D organization are excited about and proud of the work we're doing. We are enjoying another burst of creativity and productivity internally. We see Arrowhead as a leader in the science of HBV, alpha-one liver disease and RNAi in general. And we are very eager to share the great progress that our colleagues are making every day.

With that overview, I'd like to turn the call over to Ken Myszkowski, Arrowhead's Chief Financial Officer. Ken?

Speaker 4

Thanks, Bruce, good afternoon, everyone. As we reported today, our net loss for the three months ended March 3137 was $6,000,000 or $08 per share based on 74,600,000.0 weighted average shares outstanding. This compares with a net loss of $20,800,000 or $0.35 per share based on 59,800,000.0 weighted average shares outstanding for the three months ended March 3136. Revenue for the three months ended March 3137 was $9,000,000 compared to $44,000 for the three months ended March 3136. This increase was driven by the upfront payments received from our collaboration agreements with Amgen and these payments will be recognized as revenue over the next several quarters.

Total operating expenses for the three months ended March 3137 were $15,100,000 compared to $21,300,000 for the three months ended March 3136. The decrease is driven by the discontinuation of the clinical trials related to our previous clinical candidates. Net cash used by operating activities during the three months ended March 3137 was $14,300,000 compared with net cash used of $14,800,000 during the three months ended March 3136. Cash usage was consistent between periods and we continue to as we continue to close out our previous clinical trials and ramp up our discovery efforts. Turning to our balance sheet, our cash and short term investments combined totaled $86,600,000 at March 3137 compared to cash of $85,400,000 at September 3036.

We invested $24,900,000 in short term corporate bonds that mature within the next twelve months. Our total cash and investments balance was comparable to our September 3036 cash balance as the $30,000,000 upfront payment received from Amgen offset cash used for operations. Our common shares outstanding at March 3137 was $74,800,000 No preferred shares were outstanding. With that brief overview, I'll turn the call back to Chris.

Speaker 2

Thanks, Ken. While we would like to be back in the clinic right now with our next generation subcu and extrahepatic platforms, we know that the work we're doing is laying a foundation for a stronger arrowhead in the future. We think the subcu route is more commercially viable than IV for most diseases and critically important for certain areas like cardiovascular disease. In addition, the depth and versatility of our RNAi technologies enable us to address conditions across therapeutic areas and pursue disease targets that are not otherwise accessible to other modalities. So in the long run, we believe we are well positioned to create optimal RNAi therapeutics that help patients with diseases without adequate treatment options.

I want to thank all of you for joining us today, and I look forward to providing more information about the date and content of our Analyst R and D Day as we get closer to that time. I would now like to open the call to your questions. Operator?

Speaker 0

Thank you. Our first question is from Catherine Hsu with William Blair. Your line is now open.

Speaker 5

Hi, good afternoon. I'm just wondering with ARO HBV and ARO AAT are the triggers using these new candidates the same sequence as in the ARC programs or products? And also can you just compare and contrast sequence chemistry and things like that if possible? Thank you.

Speaker 2

Bruce, you

Speaker 5

want to address that?

Speaker 3

Yes, I can take that on. So it's possible that perhaps one of the sequences in ARO HBV will be similar to ARK-five 20. But at least one will not. And as far as ARO AAT, that's a different sequence than was used in ARC AAT. You know, the demand on sequences in subQ is much higher than the demand on sequences when one uses endosomal escape.

So you know, we really you know, spend a lot of effort in the subcutaneous program to find the truly best sequence and the right optimization of that sequence. And that kind of feeds into your second question, Catherine, which is to say that, you know, the amount of modification in the RNA that was used in the EX1 programs, you know, ARC-five 20, ARC-five 21, and ARC AAT was quite light in comparison to, you know, the modification work, that goes into subcutaneous dosing, with these single molecule triggers, that don't have any endosomal escape component. So the chemistry is more advanced in our subcu program, think is the best way to say it, and, more sophisticated, than was required previously with the IV programs.

Speaker 5

Thanks.

Speaker 1

You're welcome.

Speaker 0

Our next question comes from Yang with Jefferies. Your line is now open. Hi, this is Carmen on for Eun. Thanks for taking the question. So would you be interested in pursuing additional partnerships similar to the one you have with Amgen?

And have you received any inbound interest in a partnership like this?

Speaker 4

Thanks very much. Sure.

Speaker 2

Additional partnerships like the Amgen deal are a key component of our strategic plan, we are hopeful that we can execute additional partnerships like that. And yes, we are we have had good discussions with other companies about new partnerships. And so we are optimistic that we can enter into additional partnerships. Of course, have no control over timing of those. And so we can't give any guidance on when those may be, but we are certainly hopeful that we can enter into similar type of partnerships.

Frankly, have I think we have worked quite well with Amgen so far, I think that we have proven ourselves a good partner. I'd be quite comfortable with doing that multiple times.

Speaker 0

Okay, great. Thanks very

Speaker 2

much. Sure.

Speaker 0

Our next question comes from Madhu Kumar with Chardan. Your line is now open.

Speaker 6

Hi good afternoon. This is on behalf of Madhu. Two questions. With regards to the HBV program what have you learned from ARC-five 20 and ARC-five 21 about effective surface antigen suppressants necessary to move the HBV RNAi drug into pivotal trials?

Speaker 2

Bruce, do you want to tackle that in somewhat less than forty seven hours?

Speaker 3

Yeah. Well, know, I think one of the interesting things we learned from ARK-five twenty and ARK-five twenty one is, you know, with good triggers, and with care to understand the implications of integrated DNA derived surface antigen, one can get quite deep knockdown. And the other thing that we saw, Kristen, was that there were signs in the way of ALT increases that the immune system showed some reawakening, if you will, which is a very important piece of the puzzle. You know, since the goal in HBV is not to directly cure the virus the way you do with HCV, the goal with HBV is to actually allow the host immune system to get back on top of the virus and get control of it. So the fact that we showed that if you can get multi log reduction in surface antigen, you can get the immune system to show signs of life, that was very positive and instructive.

The question of what people are going to require to go into Phase III is a very interesting one. And you may or may not be aware, but, you know, there now are, you know, a couple of important efforts, at least a couple of very important efforts involving industry, academia, and the regulatory agencies, principally the FDA, to understand what the proper endpoints are in drug development going forward with HBV. And really tried to ask this question of what are the right endpoints in Phase II versus what are the right endpoints in Phase III. And also very importantly recognizing that we're likely going to be using combination therapies in HBV just like we do currently in HCV or HIV. Those all of those efforts are still they're progressing nicely, but they have not come to any sort of completion at this point.

You know, we're happy. We have a seated table there. Actually, I'm on the steering committees of those efforts. So, you know, I'm very close to this particular question. So the short answer is no one at this point I think can say with certainty what you're going to have to show in Phase II to get into Phase III.

But I do think that people are going to want to see signs that the host immune system is coming into the picture. Because we all think that's what's going to be necessary ultimately to get functional cure, which at this point seems to be the consensus endpoint that's expected to be required for the approval of this next wave of drugs, which is something we actually predicted back in 2011 or 2012. That seems to be where the field is going.

Speaker 6

Thank you. That's very helpful. So what levels of suppression do you think are necessary and over what length of treatment time or in post treatment follow-up?

Speaker 3

Well, we've seen signs of the immune system waking up with as little as a log and a half of reduction, for instance, in S antigen in individual patients, or for that matter in chimpanzees as well. So it feels like, you know, it's going to be a patient by patient sort of question that needs to be answered, in some ways. But it feels like, you know, a log's not going to be enough. It's probably going to need to be more than that in a general way. You know, we got as much as three logs, which was really, you know, has again pushed the boundaries, you know, in what RNAi can do in the industry.

And it feels like, you know, we're going to want multi log reductions probably to really play the right role in a significant number of patients.

Speaker 2

And keep in mind that we're not only talking about S antigen reductions. We think that's important, but we think that this is a complicated virus and the fact that we are also engineered five twenty one, five twenty and ARO HBV have all been engineered to knock out that entire virus, including X antigen and others. We think that's all important. We think that's all part of reaching a cure. So I think the old view of looking at reducing only S antigen is probably less likely.

I think it's probably more important that we need to have this sort of pan protein response.

Speaker 3

Yes, that's very important point. Thank you.

Speaker 6

Thank you.

Speaker 0

Thank you. And I'm showing no further questions. I would now like to turn the call back to Chris Anzalone for any further remarks.

Speaker 2

Thanks very much for joining us today, and we look forward to seeing you in September.

Speaker 0

Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone, have a great day.