Arrowhead Pharmaceuticals - Earnings Call - Q2 2019

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 would now like to hand the conference over to Vincent Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, Vince.

Speaker 1

Thank you, Sarah. Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its fiscal twenty nineteen second quarter ended March 3139. 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 clinical programs 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, 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 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 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 productive quarter for Arrowhead, characterized by continued innovation toward new potential products and reliable execution in existing programs. We've been on a rapid growth trajectory and believe we are positioned to continue this progress. We have taken some important steps forward in advancing the TRiM platform.

We moved multiple product candidates toward value driving milestones this year, and we embarked on our first pivotal study that provides us with a path to potential commercialization. We also earned a milestone payment for work on J and J 03/1989, representing a good reminder of our efficient model to use partner programs to create value by themselves while also providing capital to fund wholly owned programs toward commercialization. These accomplishments have contributed to Arrowhead's fundamental maturation as a company, and I believe simultaneously expanded the opportunities in front of us while decreasing our risk profile. This is a potentially potent combination indeed. Let's now talk about some of these accomplishments and their significance.

We began dosing in two phase one clinical studies for our newest clinical candidates, ARO ANG3 and ARO APOC3, for the treatment of cardiometabolic diseases. Consistent with our prior first in human studies, we have designed both phase one studies to provide a readout on safety and tolerability, as well as a robust look at the pharmacologic activity and duration of effect. Importantly, we expect this readout to occur in time to report data publicly this year. Despite all the progress with cardiovascular drugs over the past years and decades, atherosclerotic cardiovascular disease remains a major cause of death. Additionally, orphan indications or I'm sorry, orphan populations with cardiovascular manifestations continue to suffer without adequate treatment options.

While the current standards of care are effective at lowering LDL cholesterol in the vast majority of patients, large, well run trials continue to show substantial unmet medical need for risk modifying therapies with novel mechanisms of action. Hypertriglyceridemia and elevations in triglyceride rich lipoproteins have been shown to be important causal risks for atherosclerosis independent of LDL cholesterol. Elevated triglycerides can lead to highly dangerous pancreatitis, may participate in hepatic steatosis, and are seen in metabolic syndrome. ARO ANG3 is Arrowhead's subcutaneously administered RNAi therapeutic targeting angiopoietin like protein three, or ANGPTL3, being developed as a potential treatment for patients with dyslipidemias and possibly metabolic diseases. ARO APOC3 is Arrowhead's subcutaneously administered RNAi therapeutic, treating apolipoprotein C3, or APOC3, being developed as a potential treatment for patients with hypertriglyceridemia.

These are both attractive targets that could address a number of high value unmet medical needs, and we are the first to use RNAi against them in humans. They each provide a degree of optionality with respect to which patient populations and indications to study and pursue. For each target, there may be opportunities to treat well defined orphan diseases such as familial chylomicronemia syndrome and homozygous familial hypercholesterolemia, as well as higher prevalence diseases such as NASH or even primary and secondary prevention of cardiovascular disease. We will follow where the data lead us, and depending on the patient populations we choose to focus on, we could have a rapid path to pivotal studies. I expect that we will address clear orphan indications immediately, and I think it is even possible that we could be in pivotal studies for both ARO APOC3 and ARO ANG3 next year.

We could then begin longer term studies for larger indications concurrently, giving us a stage market approach where we move toward orphan markets quickly while we wait for studies of larger indications to mature and eventually go to market there as well. Our intention is to discuss our plans for the programs in more detail and and describe the potential opportunities and development paths later this year. Importantly, we believe these targets are well suited for RNAi therapy, and we are the first company to use this modality against them in the clinic. We believe that we can build maximum value for our shareholders by focusing on being pioneers rather than followers, and ARO APOC3 and ANG3 are good examples of this. More broadly, we intend to be first in our target markets where possible.

If instances arise where there is an incumbent, we expect to enter a market only if we believe we have clear technological superiority. Another important company milestone was achieved in April when we announced that following the filing of an IND, we received FDA clearance to begin an adaptive design Phase IIIII trial with the potential to serve as a pivotal registrational study of ARO AAT. ARO AAT is Arrowhead's second generation subcutaneously administered RNAi therapeutic being developed as a treatment for a rare genetic liver disease associated with alpha-one antitrypsin deficiency. This is the first potentially pivotal study for a compound using Arrowhead's TRiM platform. This is an important event for the company and very gratifying to see.

So much hard work over the last decade and countless breakthroughs from the talented folks at Arrowhead have led us to this point. The Phase twothree study will be called SEQUOIA. We are also initiating a separate open label study to run-in parallel, called simply ARO AAT2002. These studies together accomplish two critical goals. First, we believe SEQUOIA enables us to potentially achieve regulatory approval as rapidly as possible with the highest probability of meeting statistically significant clinically relevant endpoints.

Second, the 2002 open label study enables us to have a preliminary and ongoing look at patient responses to therapy without jeopardizing the quality of SEQUOIA by unblinding it. Bruce will give more details about the design of both of these studies in a moment, but we think they strike a proper balance between the speed to a potential NDA with the desire to see mid term confirmation that ARO AAT is doing what it is designed to do. These are our currently planned studies, and we think they are the most important for the overall AAT program. However, they are by no means the only studies we will run with ARO AAT. We have discussed a suite of studies with regulators and potential investigators that together are intended to provide information about how we can best help all types of AAT patients who may require therapy at some point.

For instance, we will be interested in potential pediatric applications, prophylaxis, and patients with severe liver disease. We view this disease holistically and ultimately want to address patients at any point of its progression. Fortunately, we are first in the field and believe we are best positioned to enroll patients quickly and conduct studies that are properly powered. Remember that AAT deficiency is an orphan indication, so the pool of patients is relatively small. The first company to offer potentially helpful therapy in well designed studies will have the best chance of attracting scarce patients, while later, Me too compounds may have a very difficult time completing any studies.

We have been working with potential investigators, patient advocacy groups, and regulators in the field for many years now, and believe there is substantial pull for ARO AAT. We expect to move quickly and not only retain, but increase our leadership in the field. Moving on to recent presentations. In April, we presented additional data on both the AAT and hepatitis B programs at the EASL International Liver Conference twenty nineteen. The data continue to be highly encouraging.

The results presented on the AAT program at EASL were from a long term preclinical study of our prior generation compound. We believe the results suggest that RNAi, and by extension ARO AAT, holds great promise for the treatment of patients with AATD associated liver disease. Specifically, were able to prevent further liver damage and reverse existing damage in PIZ mouse models that harbors the human Z AAT's gene and recapitulates many features of the human AATD liver disease. This gives us added confidence in the potential of ARO AAT in SEQUOIA and the 2002 open label study. We also presented data on JNJ-three thousand nine hundred eighty nine, formerly called ARO HBV.

It is a third generation subcutaneously administered RNAi therapeutic candidate being developed as a potential treatment for patients with chronic hepatitis B viral infection. As you know, AROVED entered into a license agreement in October 2018 with Janssen Pharmaceuticals to develop and commercialize ARO HBV. In an interim analysis of the ARO HBV 1,001 study describing results of forty patients who had twenty four or more weeks of follow-up, JNJ-three thousand nine hundred eighty nine rapidly reduced hepatitis B surface antigen. After only three doses, one hundred percent of these patients achieved greater than one log of S antigen reduction, with a mean nadir of 1.8 log reduction in E antigen negative patients and 2.3 log reduction in E positive patients. Importantly, eighty eight percent of all of these patients achieved S antigen levels less than 100 IU per mL, a threshold possibly associated with improved chances of S antigen seroconference.

JNJ-three thousand nine hundred eighty nine also reduced all other measurable viral products. It was well tolerated after one hundred and sixty eight total doses, administered to fifty six patients at doses up to four hundred milligrams. Subsequently, we announced that the ARO HBV 1,001 study was expanded to include a new triple combination cohort, now cohort 12, that includes JNJ 3,900 89 and additional undisclosed agents selected by Janssen. In connection with the start of dosing of cohort 12, Arrowhead earned a $25,000,000 milestone payment. This new triple combination cohort has the potential to generate valuable data rapidly and is an important step forward for the program and more broadly for our partnership with Janssen.

Arrowhead is eligible to receive an additional $25,000,000 upon the initiation of a Phase II study by Janssen. As you've heard, we are in the middle of another big year. We have the potential to generate data across multiple pipeline programs that should provide data readouts this year. We just have to continue to execute. With that overview, I'd now like to turn the call over to Doctor.

Bruce Given. Bruce?

Speaker 3

Thank you, Chris. Good afternoon, everyone. I want to provide a quick status update on ARO ANG3 and ARO APOC3 and then go into some detail about the design of SEQUOIA and the ARO AA2 '2 thousand and two open label study. The ARO ANG3 first in human study is called ARO ANG one thousand and one. It is a Phase one single and multiple dose study to evaluate the safety, tolerability, pharmacokinetic and pharmacodynamic effects by ARO ANG3 3 in up to 70 subjects.

This includes adult healthy volunteers with elevated triglycerides as well as patients with various types of dyslipidemia. The single ascending dose portion of the study is designed to include up to four cohorts of 10 adult healthy volunteers per cohort. Each SAD subject receives a single dose administration of either placebo or ANG3 at dose levels of thirty five, one hundred, two hundred or three hundred milligrams. The multiple dose portion is designed to include up to four patient cohorts who will receive two monthly doses of ARO ANG3. We began dosing in January.

We have now completed enrollment and dosing of the SAD cohorts at thirty five, one hundred and two hundred milligrams and will be completing dosing of the three hundred milligram cohort shortly. Following selection of a dose and Data Safety Committee or DSC and Institutional Review Board clearance, we intend to begin enrollment of the patient multiple dose cohorts, including patients with nonalcoholic fatty liver disease, patients on a stable statin regimen, with persistently elevated LDL cholesterol and triglycerides, patients with heterozygous or homozygous familial hyper cholesterolemia, and patients with severe hypertriglyceridemia. Thus, this trial is designed to give us activity insights in several distinct patient types that would represent potential development pathways for this drug. The ARO APOC3 first in human study is called ARO APOC3 one thousand and one. It is a single phase one single and multiple dose study to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamic effects of ARO APOC3 in up to 63 adult healthy volunteers with elevated triglycerides and patients with severe hypertriglyceridemia and familial chylomicronemia syndrome, better known as FCS.

The single ascending dose portion of the study is designed to include up to four cohorts of 10 adult healthy volunteers per cohort. Each SAD subject will receive a single dose administration of either placebo or ARO APOC3 at dose levels of twenty five, fifty, one hundred or two hundred milligrams. The multiple dose portion is designed to include up to three cohorts of patients with severe hypertriglyceridemia and one cohort of patients with FCS who will receive two monthly doses of ARO APOC3. We began dosing in healthy volunteers in March and have now completed enrollment and dosing of the twenty five and fifty milligram single dose cohorts. There will be a meeting at the safety committee shortly and pending clearance to proceed, we intend to begin enrollment of the one hundred milligram single dose cohort at that time.

Also at that time, we should begin enrolling the first multiple dose cohort at the fifty milligram dose level. These studies are both moving forward on schedule and we believe that we may potentially complete dosing of all cohorts including the patient multiple dose cohorts this year. I would now like to talk a bit about the general design for SEQUOIA and the ARO AAT2002 open label studies. SEQUOIA is our multiple dose, multicenter, placebo controlled, adaptive Phase twothree study to evaluate the safety, efficacy and tolerability of ARO AAT administered subcutaneously to patients with alpha-one antitrypsin deficiency. The multidose placebo controlled Part A component of the study will feed seamlessly into a two arm placebo controlled Part B component.

The primary objective of Part A is to select a single dose level for use in Part B based on a combined evaluation of safety and pharmacodynamic dose response in each Part A cohort using change from baseline in soluble liver Z AAT, insoluble liver ZAAT, and serum AAT levels as pharmacodynamic metrics. The primary objective for Part B is to evaluate efficacy as assessed by the proportion of ARO AAT patients relative to placebo achieving a two point improvement in a histological grading scale of alpha-one antitrypsin deficiency associated liver disease and no worsening of liver fibrosis biopsy. In total, the study calls for approximately 120 participants. Participants in Part a will require a pre dose biopsy and those who meet the inclusion criteria will be randomized to receive ARO AAT or placebo on days one twenty nine, one thirteen, and then every eighty four days thereafter. There are three cohorts each using a different dose level.

All three cohorts will be randomized in parallel. Once 36 subjects, 12 in each cohort, have completed a day one hundred thirteen biopsy, the Part A analysis to select a single dose for Part B will occur. Enrollment will continue into all cohorts until the Part B dose is chosen. Patients enrolled during Part A will continue on study and roll over to the Part B dose level or continue to receive placebo. These patients are intended to receive a minimum of six Part B doses and a minimum of nine doses overall.

Remaining patients needed to achieve a total enrollment of 120 will be randomized to the selected Part B dose level or placebo and will receive doses on days one, 29, and then every three months thereafter for a total of nine doses. All study data from SEQUOIA will be blinded to the patient, the treating physician and to Arrowhead. We also thought it would be helpful from a planning perspective to assess patient response to therapy at interim time points, but we did not want to have an unblinded interim analysis in SEQUOIA. Therefore, we designed the ARO AAT2002 open label study to answer some key questions concurrently, and we are preparing to initiate this study in the second half of twenty nineteen. ARO AAT2002 is an open label, multidose, Phase II study to assess changes in a novel histological activity scale in response to ARO AT over time in patients with alpha-one antitrypsin deficiency associated liver disease.

In total, the study is planned for approximately 12 participants in two sequential cohorts. Cohort one consists of four patients and cohort two consists of eight patients. All eligible patients will require a pre dose biopsy completed as part of the study. Patients that then enroll are expected to receive a minimum of three doses of ARO AAT in cohort one and five doses in cohort two, with repeat biopsies approximately one month after the third or fifth dose respectively. Doses will be administered on days one twenty nine, one thirteen, and approximately every eighty four days thereafter.

Patients who complete cohorts one or two may elect to participate in an extension cohort, which would include an additional four doses, again given quarterly, followed by a repeat liver biopsy. The primary objective to evaluate effective ARO AAT on a histologic liver disease activity scale will be assessed at twenty four weeks for cohort one and week forty eight for cohort two. Multiple secondary exploratory objectives will also be assessed throughout the study. The ARO AAT2002 open label study will be conducted at various sites in Europe pending regulatory clearance and is planned to start shortly after SEQUOIA likely in the third quarter of this year. Between SEQUOIA and ARO AAT two thousand and two, we will generate a good amount of data on patient response at multiple dose levels using several different measures and after short, mid and long term treatment with ARO AAT.

We see this as another great example of Arrowhead's innovative thinking around trial designs that allow us to accomplish several goals in parallel. With that brief review of our clinical programs, I'd like to turn the call over to Ken Busczkowski, Era's Chief Financial Officer. Ken?

Speaker 4

Thank you, Bruce, and good afternoon, everyone. As we reported today, our net income for the quarter ended March 3139, was $23,900,000 or $0.24 per share based on 98,100,000.0 fully diluted weighted average shares outstanding. This compares with a net loss of $14,900,000 or $0.18 per share based on $84,100,000 weighted average shares outstanding for the quarter ended March 3138. Revenue for the quarter ended March 3139 was $48,100,000 compared to $700,000 for the quarter ended March 3138. Revenue in the current period relates to the recognition of a portion of the upfront payments and milestones from our license and collaboration agreements with Janssen, while revenue in the prior period related to a recognition of a portion of the upfront payments from our licensing collaboration agreements with Amgen.

Revenue from the Janssen agreement will be recognized based on our estimate of the proportion of effort expended toward fulfilling our performance obligations, primarily overseeing the completion of the current Phase onetwo HBV clinical trial. We expect the majority of the revenue to be recognized in this fiscal year, but we also expect revenue in fiscal twenty twenty as we continue to perform certain follow-up activities throughout 2020. Total operating expenses for the quarter ended March 3139 were $26,100,000 compared to $15,700,000 for the quarter ended March 3138. This increase is primarily due to increased drug manufacturing and clinical trial costs as our pipeline of clinical candidates has increased. Net cash used in operating activities during the quarter ended March 3139 was $19,600,000 compared with net cash used in operating activities of $15,400,000 during the quarter ended March 3138.

The increase in operating cash usage was also due to increased drug manufacturing and clinical trial costs as our pipeline of clinical candidates has increased. Turning to our balance sheet. Our cash and investments totaled $285,700,000 at March 3139, compared to $76,500,000 at September 3038. The increase in our cash and investments was primarily due to the cash received from Janssen. We anticipate receiving the $25,000,000 Janssen milestone recently announced during the quarter ended June 3039.

Our common shares outstanding at March 3139 were 94,700,000.0. With that brief overview, I will now turn the call back to Chris.

Speaker 2

Thanks, Ken. The year is off to a great start and we think there are a lot of exciting and value creating events ahead during the rest of the year. By the end of calendar twenty nineteen, we expect to have seven TRiM enabled candidates in or approaching clinical studies, five of which we expect to wholly own. We'll have a good mix of early, mid and later stage clinical programs, both wholly owned and partnered, targeting a diverse set of disease areas in multiple cell types. Few companies in the world will have this type of capability, and I expect no other RNAi company to be in this position.

Moving forward, this broad and growing pipeline should provide a steady stream of key data readouts at relatively regular intervals. We expect to also have a clear line of sight to our first or possibly multiple commercial product opportunities. Arrowhead is on a very solid base right now, and we have shown consistently that we can make rapid progress on our long term goals to file two to three new CTAs every year, target a new cell type with the TRiM platform every eighteen months, and have 10 TRiM enabled candidates in clinical studies by the end of twenty twenty. I will also add that I expect us to be in three pivotal studies next year. Thanks again for joining us today.

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

Speaker 0

Our first question comes from the line of Murray Raycroft from Jefferies. Please go ahead.

Speaker 5

Hi, everyone. Good afternoon. Thanks for taking the questions and congrats on all the progress. For I guess starting off with ANG3 and APOC3, you've made a lot of progress there. Just wondering if some of the meetings that you have on your calendar are coming up soon, if we could see any update from those studies at one of those meetings?

Speaker 2

Maury. Thanks very much. So the answer is we don't know, but I hope so. Just as last year, we had guided that we intended, we hoped to have data at AASLD for both AAT and HBV. We have guided this year that we expect to have data sometime by the end of the year, hopefully, at American Heart Association meeting in the fall for APOC3 and ANGPTL3.

Just like with AAT and HBV last year, my hope is that we can find some smaller conferences between now and then to give an update on how those programs are going. I don't yet know if the timing is going to work out. I don't yet know, of course, if we would be accepted to present somewhere else. But that is my goal. And so it is my hope that we can do that.

Speaker 5

Great. Okay. And then for AAT, for ARO AAT, a lot of details that came out in the clinical trial design there, which seems like you will be able to answer a lot of questions from that. I'm wondering from Part A, so you're going to enroll those initial 36 subjects. Do you have an idea on how long it's going to take to enroll those 36 patients and then how long it takes to get to the end of Part B.

Can you provide any estimates on that?

Speaker 2

Bruce, do you want to address that?

Speaker 3

Yes. So this, of course, is a big question for us. Nobody's been here before in AAT liver disease. So, we're paving all the pathways, including sort of putting together the right group of investigators, etcetera. So I can't really give you a timeline on that.

You know us. If it's possible to go fast, we will be going fast. If it's possible to go faster, we'll go faster. Nobody's as fast as us in the clinic, I don't think at this point. But truthfully, it's hard to put a time on that at this point, Murray.

And that is very important. Now once those 36 have been enrolled, we will continue to enroll into Part A until thirty six patients have had their biopsies and the DSMB. And it's going to be the DSMB that selects the dose. They'll be have the ability to look at unblinded data while we will not. So they will look at the three different doses and look at the combination of safety and activity and choose the best dose for Part B.

So at that point, patients that have been enrolled in Part A will convert over that Part B dose. And then the remainder of the patients will be recruited into Part B on that dose or placebo. Those patients will basically set the last patient, that one hundred and twentieth patient will set the duration of the active treatment period. And those patients will receive ninety six weeks of therapy if they get all the doses they're supposed to get prior to their final biopsy. So that tells you the duration of Part B for that last patient.

And of course, patients will be completing along the way up until that time. Did that get your question answered?

Speaker 5

Yes, think so. It's information that we'll want to think about and see how that could play out, I guess. As far as the three doses go, can you clarify what you're using

Speaker 2

initially?

Speaker 3

Yes, The doses are twenty five, one hundred and two hundred.

Speaker 2

Mario, let me just add one more thing to your prior question. Of course, no one can predict how quickly you can enroll patients. But I will say, as you know, we've been at this for quite some time. We've been talking to and we've been establishing relationships with investigators now for several years. It's going to be a multinational study.

And so I think that we have cast a large net and I think it's the right net. And we're thinking now up to 40 sites. And so I think we have a good chance of enrolling this as quickly as possible. And again, as I mentioned in the prepared remarks, we're the first in this field. And so I think that we have a good chance to really go out and bring in the patients that will be willing to do a study like this reasonably quickly.

Speaker 5

Yes. And as far as starting the study and rolling out the sites, are you on track for starting at this quarter with the initial dosing?

Speaker 2

Bruce, do want to address that?

Speaker 3

Well, there's not a lot of time left in this dosing. Think it's not impossible that we would get going in this quarter. But it's hard to guarantee that. Have to get through the IRBs and all the contracting at the sites, etcetera. Then you have to get patients screened and you have to get their initial qualifying biopsy.

So there's a lot of moving parts there to get it started this quarter. I wouldn't bet against it, but it wouldn't shock me if it drifts into the early part of next quarter before those first patients get in.

Speaker 5

Got it. And my last question and then I'll hop back in the queue. Just with the open label study, so that's starting later and you've got the two cohorts there. You're going to by that time, you're going eliminate one of the doses from I guess, how are you going to pick which doses

Speaker 3

to Yes. Use in the open In the 2002 study, we're using the two hundred milligram dose. Our rationale is that it's very possible that a lower dose will be fully active in Part A. But for this study, we wanted to not

Speaker 5

get too

Speaker 3

cute. Given that we have a very good tolerability profile from the first work we've done, we feel comfortable going ahead and using that in the 2002 study.

Speaker 5

Got it. Okay. Very good. I'll hop back in the queue then. Thank you.

Speaker 3

Thanks, Maury.

Speaker 0

Your next question comes from the line of Ted Tenthoff from Piper Jaffray. Please go ahead.

Speaker 6

Great. Thank you very much. Appreciate the color on the programs. I wanted to just come back to HBV for a second and make sure I understand sort of the changes that take place with the Phase onetwo and the Phase two study start. Can you provide us any more detail around sort of how that plan has changed?

Thank you very much.

Speaker 2

Bruce, wanna take that?

Speaker 3

Yeah. Sure. I don't know that the plan has necessarily changed. You know, Janssen is still responsible for the, the major Phase II work that goes on. What did happen is that both Janssen and us saw the opportunity to very rapidly get into some preliminary combination work, taking advantage of the fact that we have the 1,001 study open.

We have a collection of really the top investigators in Asia Pacific. So we felt that it was quite likely that we could produce some pretty interesting early data by just going ahead and jumping in and doing that while they do all the heavy lifting to get the large phase two going and go through all the regulatory check ins you know, across the world. So so it's not so much that anything changed. It was just, you know, classic, you know, arrowhead, Jansen opportunism, you know, opportunism to, learn something really important earlier than you otherwise would be able to, if that makes sense.

Speaker 0

Your next question comes from the line of Elmer Pairas from Cantor. Please go ahead.

Speaker 7

Thank you very much for the comprehensive overview. Bruce, if I may just have a clarification on the AAT trial between Part A and Part B. So what would be the treatment period in Part A? And the same question goes to Part B. Or is there some overlap for some patients who continue on the same dose from Part A to Part B?

Meaning, yes, if you could clarify this for us, please.

Speaker 3

Right. So the plan is that all patients from Part A irrespective of what dose they were on, will coalesce into Part B on the Part B dose. So we're not going to lose any patients, whether they were getting active drug or getting placebo during Part A, they will all be at least offered the opportunity to be retained in Part B. That is our plan, to keep them. The length of time somebody spends in Part A really depends on how long you know, enrollment takes.

You know? So that first patient in Part A is going to spend more time there than the last patient in Part A. You know? So so how much time they spend there is really relative to when they come in. Any patient from Part A that goes into Part D gets a minimum of six doses in Part B.

So basically, they'll get a minimum of a year and a half, if you will, on the Part B dose. A patient that comes straight into Part B will have two years at the Part B dose, but a patient that comes into Part A will get at least a year and a half of Part B, and they will have had at least, you know, six months in Part A. But it's possible that some patients will have a longer period in Part A before getting their year and a half in Part B.

Speaker 7

I see what you mean. Okay. Okay. I think it's clear. And the open label 2002 trial, what could you learn from that that could influence the Phase twothree itself?

Speaker 3

Well, it's not designed to influence the Phase twothree. Never say never in this world. So I suppose there's always a possibility you saw something there that caused you to want to go talk to the regulators about it. But it's really not so much designed to have any potential influence on the SEQUOIA study. It's really designed just to help us understand sort of what the dynamics are of changes in the liver.

Nobody knows, of course, especially with active therapy. So the way it's designed, we will get a readout at basically a pharmaceutical six months and one year, twenty four and forty eight months. And then hopefully those patients will decide to stay on drug and will get a further, you know, one year of therapy in both of those groups, which means that you'll have, you know, in the end data at six months, one year, one and a half years, and two years. So it really gives us a sense of the dynamics of change, which we will not get from Sequoia. Sequoia will be much more robust and is robust from a regulatory perspective and fully negotiated with FDA.

But 2002 will really, I think, scientifically inform the field of sort of how rapidly things can change in AAT liver disease, which at the moment there is absolutely zero known about that. So it's a different thing.

Speaker 7

Yeah. Thank you very much for that. And maybe just a couple of questions to Ken to clarify some of the recognition of the Janssen upfront. For some reason, I assumed about 30 some odd million for the next couple of quarters. Would that be a higher number based on this fiscal second quarter number that you recognize?

Speaker 4

No, I think those amounts are accurate. The total that we're going to recognize now includes the $25,000,000 that we just earned, the milestone that we just earned. And we recorded 82,000,000 if we're entering the first half of the year. And we anticipate that we'll recognize about 65,000,000 to $70,000,000 in the second half of the year, and the balance will be recorded then in 2020.

Speaker 7

And do I understand it correctly, Ken, that the previously disclosed $50,000,000 milestone has been split into two. You received 25,000,000 now and you anticipate another 25,000,000 next quarter when the Phase two is going to get underway?

Speaker 4

So it was split into two, yes. We earned the first $25,000,000 and the second $25,000,000 will come when J and J starts the Phase II clinical trial.

Speaker 7

And the last one is the share count increase from 92.6 to 98. Is this due to the Janssen share purchase or some other additional shares or has it been included previously?

Speaker 4

The Janssen shares were recorded not in this quarter, but in last quarter, a little over 3,000,000 shares. There were a little over 3,000,000 shares, additional shares outstanding during this quarter added also due to RSU vestings and option exercises.

Speaker 7

Okay. And sorry, but there was one more. How should we think about R and D ramp, spending ramp in the remainder of this fiscal year?

Speaker 2

Would it Yes. So we've guided a burn of around 20,000,000 a quarter for this year and we've been and we're sticking with that. That still feels like the right guidance.

Speaker 7

Thank you very much, Chris.

Speaker 4

Thank you.

Speaker 0

Your next question comes from the line of Keay Nakae from Chordan. Please go ahead.

Speaker 6

Hi. Bruce, with respect to the triple combo cohort, can you tell us how far out those patients are going to be evaluated and when we might see that data result?

Speaker 3

Yes. I don't think I am allowed to give any details on that particular cohort. I do think it's possible that we may get a late breaker in to And of course then whether they'll accept it or not is unknown. That could well happen, but I'm not really allowed to give details on the cohort.

Speaker 8

And and to be

Speaker 2

to be clear, ASLD, not No.

Speaker 5

I'm sorry. I'm

Speaker 3

sorry. Yeah. Yeah. A on my mind. AASLD.

Yeah. Thank you.

Speaker 6

So does that waiting for that data, does that impact at all when Janssen may go forward with the Phase II?

Speaker 3

That was a good question, but I don't think it's going to have any impact on that at all. I don't think that's what it's designed to try to do.

Speaker 2

Okay. This was more of an and not an or. As Bruce said earlier, this looked like a good opportunity for both Janssen and for us to generate some more data while they're preparing for the larger Phase II.

Speaker 6

Okay, great. Two more for you. The open label AATD, can you just clarify, Bruce, how many biopsies might these patients be providing?

Speaker 3

So in the trial, without the extension, so the two cohorts, they get a baseline and then a biopsy either at week twenty four or week forty eight depending on whether they're in cohort one or cohort two. They are then given the opportunity to get four more doses and essentially be biopsied a year after their first biopsy. So if they decide to go into the extension, they'll get three biopsies. If they only go you know, do the original trial without the extension, they'll have two biopsies total.

Speaker 6

Okay. And do you see that being problematic in any way?

Speaker 3

You know, look. I mean, if I'm a patient, you know, I want I want the treatment. I want I want all the treatment I can get, But that's me, and I can't speak for those patients. It will not surprise me if a large number or even all of them go into the extension and get that third biopsy. But honestly, it's very hard to predict.

Speaker 6

Okay. And then just a final question. With respect to the $25,000,000 milestone payment for the triple cohort, will you recognize all of that in fiscal Q3 as revenue?

Speaker 4

So the $25,000,000 that we just earned gets added to the upfront. It becomes part of the overall amount that we need to recognize over the performance period, which as I said was the completion and follow-up of the phase one study. That's the accounting requirements because the milestone was received during the performance period. When milestones are received after that performance period is completed, they are recognized in full at the time they're earned.

Speaker 6

Okay. Thanks.

Speaker 0

Your next question comes from the line of Mayank Mamtani from B. Riley FBR. Please go ahead.

Speaker 8

Thanks for taking my question and congrats on the progress. Just a couple of just clarification on the AAD. Did you ever comment like what exactly on the histology, like what specific is the endpoint that you're measuring and sort of like what data exists out there that shows some kind of correlation with the clinical outcome, if you can clarify that?

Speaker 3

You want me to take that, Chris?

Speaker 2

Sure.

Speaker 3

Yeah. So we're in the process of developing a scale. So today, as we sit here, there is no AAT scale. However, over the last few years, there have been several relatively large studies, approximately 100 patients collecting biopsies in patients with AAT. So there's actually a nice available set of slides out there with which to put together a scale.

So we are actually doing the heavy lifting on that to create that scale. And that's so that scale will be completed and in the hands of regulators before Part A ends. So basically, there'll be the opportunity to decide whether there need to be any changes in the endpoint or not. But the elements of that scale, I think people in the field have a pretty good idea of what the elements of that scale are likely to be and how the scale is likely to look. But it's going through very intense and regulatory driven process just the same way they did, for instance, in creating the NASH scale to not only develop but fully validate and fully document the process so that regulatory authorities will be comfortable that the scale was put together the right way.

As to the responsiveness of the scale to treatment, of course there's never been an effective treatment for this disease, so we don't actually have any data on that. That's part of what the 2002 study, why it will be such a pathfinding study. This will be the first time ever that people have been able to take a drug that's likely to be very active in reducing the input function that causes the disease, which is production of the Z mutant AAT, knock it down completely and see what how the livers respond and what sort of repair process occurs, etcetera. So that's what makes the 2,002 study a really interesting scientifically important study, even at its size. So maybe more than you asked for, but basically it's all part of an orchestrated program to get to the point that the regulators are hopefully presented with a data package that they're very comfortable with approving a drug

Speaker 8

No, that's super helpful. I understand it's then not as linear as the F1 through F4 that you see in NASH. It's

Speaker 5

going to

Speaker 8

be a composite of multiple things that you just laid out. And then my follow-up was that, so as I understand, when you see the Part A result or some sort of data readout there, you would also have some sort of readout from the scale. So I guess my question is you'd sort of like know what good looks like at the time when you get to that infection point.

Speaker 3

Yes, actually the scale will not be looked at that point. So those Part A biopsies will not be assessed histologically. They'll only be assessed for the effectiveness of the various doses at knocking down the production of the monomer, which is the soluble whether that period of knocking it down has made any difference in the amount of polymer around. And they'll also look at the plasma concentrations, even though they're frankly not the important point here. The important point here is the monomer.

That's what matters. And that's all they're looking at. They are not looking at any histology.

Speaker 8

Okay. And then any of the follow on approaches that might be pursued, potentiated, corrected or anything else that they will have to probably go down the same sort of pathway that you've laid out? Is that sort of the understanding of the field?

Speaker 3

Well, you can never speak for regulatory authorities, but I think that it would be highly unlikely that anybody else would be able to somehow take a shortcut. I think this is what's going to be required for everybody.

Speaker 8

Okay, great. And then back on since AHA is on your mind, I and don't know, maybe we'll learn some data on LP program from Amgen. But my question there was really like, are there any learnings from how that has been developed for a particular elevated dyslipidemia indication? Are there any learnings that you're applying to your SADMAD sort of programs for APOC3 ANGPTL3 including potentially having some sort of a disease test that basically allows you to diagnose for some of these patients with elevated risk?

Speaker 3

Well, these we're not in a world here with APOC3 and ANGPTL3 of sort of esoteric measurements. I mean, it's really triglyceride, it's triglyceride rich particles, it's LDL cholesterol in the case of the familial hypercholesterolemias, for instance. So these are all well worn pathways. We understand them very well. The risk associated with triglycerides now, I think, have really been nicely elucidated not only by GWAS but also even from the amirid study.

I think we're on a little different ground, I believe just as strongly as in Lp, by the way, just as strongly. But in that case, they're going to have to get the community to understand the importance of measuring Lp and go through that process to get that test widely used. But the case of our drugs, we're talking about measurements that almost every American gets, well if they're managed medically, their LDL cholesterol and their triglycerides are being measured already.

Speaker 8

Okay, great. Thank you for taking my questions.

Speaker 3

Sure.

Speaker 0

Your next question comes from the line of Murray Raycroft from Jefferies. Please go ahead.

Speaker 5

Hi, thanks for the follow ups. I just have two quick ones. For AAT, just wondering if there are any serum biomarkers that can be assessed over time that may provide a surrogate outside of A1AT?

Speaker 3

Yes. Why don't I go ahead and take that, Chris, if you don't mind?

Speaker 2

Sure.

Speaker 3

Mari, we're in the same place as the NASH folks and other people that are dealing with fibrotic liver disease. Everybody is trying hard to figure out a way to not have to biopsy patients to know what's going on both where they are at base line and are they improving. So in many ways at the level of sort of what you're treating and what you would follow, if over the next few years, the NASH folks really managed to truly validate something that works in NASH, I'll bet that it will work in AAT as well. But to the extent that they also have not really been able to despite a lot of effort and sort of a lot of abstracts and publications, nobody has a validated method short of biopsy yet to diagnose the level of fibrosis that's there and to really reliably feel like you know that you're producing change of a meaningful sort. So we're in the same place and I

Speaker 5

don't think there's going to

Speaker 3

be anything special for AAT in that regard and plasma levels of the hormone aren't going to be the answer because they tell you probably how effective you are knocking down the AAT production, but they're not really going to tell us, no kidding, what's going on in the liver.

Speaker 5

Got it. Okay. And then as far as the baseline liver fibrosis score and the biopsies that you take, is there any goal for inclusion or exclusion that you're going for?

Speaker 3

Yes. They have to be F2 or F3.

Speaker 5

Got it. Okay. Okay.

Speaker 4

Thank you very much.

Speaker 3

You're welcome.

Speaker 0

And I'm showing no further questions at this time. I would now like to turn the conference back to Chris Anzalone.

Speaker 2

Thanks everyone for joining us today and we'll talk to you next quarter.

Speaker 0

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day. You may all now disconnect.