Arrowhead Pharmaceuticals - Q2 2023
May 2, 2023
Transcript
Operator (participant)
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 One moment. I will now hand the conference over to Vincent Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, Vince.
Vincent Anzalone (VP of Investor Relations)
Thank you. Good afternoon, everyone, thank you for joining us today to discuss Arrowhead's results for its fiscal 2023 second quarter ended March 31st, 2023. With us today from management, our President and CEO, Dr. Christopher Anzalone, who will provide an overview of the quarter, Dr. Javier San Martin, our Chief Medical Officer, who will provide an update on our mid and later-stage clinical pipeline, Dr. James Hamilton, our Chief of Discovery and Translational Medicine, who will provide an update on our earlier stage programs, and Ken Myszkowski, our Chief Financial Officer, who will give a review of the financials. In addition, Tracie Oliver, our Chief Commercial Officer, and Patrick O'Brien, our Chief Operating Officer and General Counsel, will be available during the Q&A portion of the call.
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 are forward-looking statements and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. For further details concerning these risks and uncertainties, please refer to our SEC filings, including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q. I'd now like to turn the call over to Chris Anzalone, President and CEO of the company. Chris.
Christopher Anzalone (President and CEO)
Thanks, Vince. Good afternoon, everyone, and thank you for joining us today. In 2017, we introduced our proprietary TRiM platform. We believed then that it could become an industry-leading RNAi platform for hepatocyte-focused therapies, and importantly, one that could bring RNAi outside the liver. This was based entirely on our confidence in the potential of the science. At the time, we had no clinical programs, a single partner, and our stock was trading for less than $2. Six years later, we have 12 individual drug candidates in clinical studies targeting two different organ systems, three ongoing phase III studies, five strong partners, a healthy balance sheet, and a reason to believe that the next six years will be characterized by even more rapid growth.
We expect to have at least 14 drug candidates in clinical trials by the end of this year, targeting three different organ systems: liver, lung, and CNS. Skeletal muscle targeting programs could grow this to 16 individual drug candidates across four different organ systems in 2023, but partnering opportunities make that a bit more difficult to predict, and I will touch on that later in the call. We are well on our way to reach our 20 and 25 goal to grow our pipeline of RNAi therapeutics to a total of 20 clinical stage or marketed products in the year 2025. I do not believe there is a company on the planet that can match this. We've made substantial progress over the past quarter and since our last call. Let's start with pulmonary.
We recently disclosed early top-line data for ARO-RAGE in normal healthy volunteers. The data were very encouraging and indicated a high level of target gene knockdown with a long duration of effect in a well-tolerated manner. James will talk about these data in a moment. I want to put this into context. I believe that Arrowhead is the first company to ever show RNAi-mediated target gene knockdown in the lung. Even more impressive was the magnitude of response. We didn't just get on the board. We saw up to 90% knockdown in serum after just two inhaled doses at the fourth of fifth of five planned doses. We do not yet have data from the highest single or multiple dose cohorts. It appears that the pulmonary platform is doing what it was designed to do. ARO-RAGE appears to be highly potent.
I expect the durability to enable monthly or less frequent dosing. We've often said the clinical validation of the lung platform could mark the beginning of a second rapid wave of growth for our company. Cells don't care what the sequence of an RNAi drug is. Once we find that reducing expression of a specific target gene can be done in a well-tolerated manner, we have a high degree of confidence we can replicate it with any number of new gene targets, much as we have done in the liver. That is where we may be with the pulmonary franchise. I think the data we reported and the additional data we expect to present at the R&D Day on June first represent the initial clinical validation we were hoping for. This is a big deal.
I fully expect that in the near to midterm, we will have several potentially important new drug candidates targeting the lung that could address grinding unmet medical needs. ARO-MUC5AC will be our next pulmonary dataset, and I expect that we will have some normal healthy volunteer data by the R&D Day. These 2 programs continue to move forward and have both progressed into part 2 of the phase I/II studies where asthma patients are treated. We hope to have some data from the patient portion of these studies by the end of the year. Rounding out our current pulmonary pipeline is ARO-MMP7. During the last quarter, we initiated a phase I/II study for the treatment of idiopathic pulmonary fibrosis, and we are currently dosing normal healthy volunteers. Where do we go next? The central nervous system.
There are a number of untreatable and poorly treated CNS conditions and many genes that could serve as powerful targets for RNAi therapeutics. We have spent a substantial amount of time developing a CNS-focused TRiM platform and are just about ready to bring our first drug candidate to the clinic. As we announced a couple weeks back, ARO-SOD1 is our first CNS-targeted drug candidate to be nominated. It will be investigated as a potential treatment for patients with ALS caused by SOD1 mutations. We have already completed disease model work and CTA-enabling toxicology studies and are now on track to file a CTA next quarter. You will hear more about the platform and the candidates at the June first Analyst Day. We see these as powerful tools for a new set of patients we seek to serve.
Importantly, as with liver, pulmonary, and skeletal muscle delivery, we expect to follow ARO-SOD1 with several additional drug candidates. In addition, we have made impressive progress on different modes of administration, and while we are not quite there yet, we believe we are approaching the day where we may administer RNAi CNS drug candidates systemically across the blood-brain barrier. This would be a truly disruptive leap forward, and our data suggests that we are close. We look forward to discussing this as well at the Analyst Day. We have said in the past that we are committed to bringing RNAi to where unmet medical need is, and this means constantly expanding TRiM. We believe we can address a new cell type every 18 to 24 months, and while our CNS franchise meets this, it is not the only new organ system we are exploring.
I believe we can now also deliver to adipose tissue and have demonstrated in non-human primates target gene silencing of greater than 90% with over six months of duration after a single subcutaneous injection using what we believe are clinically relevant dose levels. Adipose tissue is the largest endocrine organ in the body, and we believe there are many targets to address and many potential patients to help. You will hear more about this new platform next month at the Analyst Day. Let's now turn to our more established clinical programs. We've shared some early data from the phase I/II study of ARO-C3 for complement-mediated diseases, and they are compelling. We are seeing deep and durable knockdown in healthy volunteers and have progressed to the patient portion of the study.
We also shared liver fat data that Janssen generated in a phase I/II study of Arrow PNPLA3 for NASH in patients with PNPLA3 mutations. Those two were quite encouraging and demonstrated deep reductions in liver fat after only a single dose of Arrow PNPLA3. We plan to move that into a multi-dose phase II study in NASH patients late this year. Moving on to our later-stage pipeline, we continue to enroll patients in the phase III PALISADE study of Arrow APOC3 in patients with familial chylomicronemia syndrome, or FCS, and expect to meet our enrollment goal of 72 patients tomorrow. There are also some additional patients that have passed screening and who will likely be randomized over the next two weeks. At that point, enrollment will be complete, and I expect that we will have closer to 80 patients in the study.
We also received Fast Track designation from the FDA for ARO-APOC3 for reducing triglycerides in adult patients with FCS, which will be helpful as we advance the program rapidly. Javier will talk about this in a moment. I expect this to be our first drug to complete a phase III study and, if efficacy and safety are established, could be the first NDA that we file. This could be next year. It would represent an important step for us. That is not the only population of patients we intend to treat with ARO-APOC3. I expect us to take steps toward pivotal studies in patients with severe hypertriglyceridemia and those with mixed dyslipidemia later this year. The ARO-ANG3 phase II study in mixed dyslipidemia patients is complete, as is the phase II study in patients with homozygous familial hypercholesterolemia, or HoFH.
I expect that both of these will move toward phase III studies later this year. Both ARO-ANG3 and ARO-APOC3 appear to be potentially powerful drug candidates. We have included nearly 900 patients in the basket of phase II and phase III studies of ARO-ANG3 and ARO-APOC3 over the past couple of years and continue to be encouraged by the drug candidates' activity and safety profiles. I believe that both of these will ultimately be important drugs for many patients. During the quarter, we announced that our partner, Takeda, had treated the first patient in the phase III REDWOOD study of Fazirsiran being investigated as a potential treatment for alpha-1 antitrypsin deficiency liver disease. This is the third TRiM-enabled candidate to reach a phase III setting, which earned Arrowhead a $40 million milestone payment.
We also received a $30 million milestone payment from GSK after the start of GSK's phase II-B trial of GSK4532990, formerly called ARO-HSD, an investigational RNAi therapeutic for the treatment of patients with NASH. These milestone payments are helpful for our balance sheet also represent two more important things. First, they are a confirmation that our strategy to have a healthy mix of both wholly owned and partnered programs is playing out as intended. Second, they indicate that important new medicines that Arrowhead discovered are getting closer to the patients who need them. Before I hand off to Javier, let me say a few words about the skeletal muscle franchise and DUX4 or I'm sorry, and ARO-DUX4 specifically. We completed everything required for a CTA, including regulatory filing preparation, acute and even chronic GLP toxicology studies.
We are prepared to file the CTA and begin a phase I/II study, but several companies have expressed interest in potentially partnering on the development of ARO-DUX4 and potentially our next skeletal muscle-targeted drug candidate that will be CTA-ready in Q4. As such, we paused filing while we explore these options. Of course, I do not know if any of these will translate into license agreements and partnerships, but I expect we will either complete a deal or move forward with the ARO-DUX4 clinical program over the next couple of months. Arrowhead is executing at a very high level. Our platform is expanding into new areas. Our early pipeline is generating impressive results. Our mid and later stage pipeline are giving us line of sight to when we may be able to make the transition into a commercial stage company, and our business development activities continue to bear fruit.
With that overview, I'd now like to turn the call over to Dr. Javier San Martin. Javier.
Javier San Martin (Chief Medical Officer)
Thank you, Chris, and good afternoon, everyone. Before I go into the mid and late-stage cardiometabolic studies, I want to quickly review the status of Fazirsiran, our investigational RNAi therapeutic being developed in partnership with Takeda for the treatment of liver disease associated with alpha-1 antitrypsin deficiency. During the last quarter, we reported data demonstrating that patients receiving 25, 100 or 200 mg of Fazirsiran who had baseline fibrosis achieved a dose-dependent mean reduction in serum Z-AAT concentration at week 48 of 74%, 89% and 94% respectively, leading to dramatic reductions in total liver Z-AAT and PASD global burden, a histological measure of Z-AAT accumulation. In addition, 42% of patients showed an improvement in portal inflammation, and 50% of patients achieved an improvement in fibrosis of at least 1 point by METAVIR stage.
These data were very consistent with the prior data generated from the 2002 open label study. Takeda initiated and began dosing in the REDWOOD clinical study. It is a randomized, double-blind, placebo-controlled phase III trial to evaluate the efficacy and safety of Fazirsiran in the treatment of AATD liver disease. Approximately 160 adult patients with METAVIR stage F2 to F4 fibrosis will be randomized 1 to 1 to receive Fazirsiran or placebo. The primary endpoint of the study is a decrease from baseline of at least 1 stage of histological fibrosis METAVIR staging in the central liver biopsy done at week 106 in patients with METAVIR stage F2 and F3 fibrosis. Additional information on the REDWOOD study can be found at www.theredwoodliverstudy.com.
I also want to give a brief update on where we are with our cardiometabolic candidates, ARO-APOC3 and ARO-ANG3. I will start with ARO-APOC3, our investigational RNAi therapeutic being developed as a treatment for patients with mixed dyslipidemia, severe hypertriglyceridemia, and FCS. The SHASTA-2 phase II study in 229 patients with severe hypertriglyceridemia and the MUIR phase II study in 353 patients with mixed dyslipidemia are both on schedule for data readout later this year. This data will enable us to request end of phase II meeting with regulators to discuss and get feedback on our plans for phase III studies. PALISADE phase III study in 72 patients with FCS is ongoing. We have enrolled 70 of the planned 72 patients, we believe we will reach planned enrollment tomorrow.
This is a 48-week study with primary endpoint of % change from baseline in fasting triglycerides. This put us on schedule for study completion in Q2 of 2024. A data readout shortly after that and then NDA preparation. I'm also pleased to announce that during last quarter, ARO-APOC3 was granted Fast Track designation by the U.S. FDA for reducing triglycerides in adult patients with FCS. ARO-APOC3 was previously granted Orphan Drug Designation by the FDA and the European Union for the same indication. Fast Track is a process designed to expedite the development and review of drugs to treat serious or life-threatening conditions and fulfilling a medical need. The purpose is to get important new drugs to patients earlier. This designation makes Arrowhead eligible for multiple potential benefits, including more frequent interaction with the FDA, eligibility for priority review, and eligibility for rolling review of the NDA.
Once we have complete data from the phase III PALISADE study in 2024, we intend to utilize all available mechanisms to get this potentially important drug to patients as quickly as possible. This will be the first phase III readout of Arrowhead and our pipeline of RNAi therapeutics that utilize our proprietary TRiM platform. That represents a significant milestone for the company. Moving on to the second wholly-owned cardiometabolic candidate, ARO-ANG3, which is our investigational RNAi therapeutic being developed as a treatment for homozygous familial hypercholesterolemia or HoFH and heterozygous familial hypercholesterolemia or HeFH. We have completed the ARCHES-2 phase II study in 204 patients with mixed dyslipidemia. We're currently in the process of generating and analyzing study data, which we intend to report on later this year. The second phase II study for our ARO-ANG3 is the GATEWAY study in 18 patients with HoFH.
This study is an open label and was fully enrolled previously. I'm happy to report that the LDL reduction in this difficult-to-treat population with limited treatment options appeared to be competitive with evinacumab, a monoclonal antibody that targets the same ANGPTL3 protein, which is currently approved for HoFH patients. We will present interim data from the GATEWAY study at the 91st European Atherosclerosis Society Congress on May 27th. These were welcome results, thus we're currently working on the phase III study design and plan for ARO-ANG3 in HoFH. We will also talk in more detail about the unmet need in cardiovascular disease, the results from our cardiometabolic programs, our clinical development plans, and our commercial strategy at the upcoming R&D Day in June. I will now turn the call over to Dr. James Hamilton. James.
James Hamilton (Chief of Discovery and Translational Medicine)
Thank you, Javier. We have demonstrated significant progress across discovery and early development. We continue to extend the reach of our TRiM platform to new tissue types and expand our pipeline into new disease areas in which patients have inadequate treatment options. We've also rapidly and efficiently advanced multiple early clinical stage programs and continue to generate highly encouraging data using various versions of the TRiM platform, each optimized for a different cell type. I'd like to focus today on a few different areas. The pulmonary platform with recent top-line data announced for ARO-RAGE, ARO-C3, our candidate for complement-mediated diseases, and our emerging CNS platform, with the first candidate being ARO-SOD1. Let's start with pulmonary. We have three candidates in the clinic now, ARO-RAGE, ARO-MUC5AC, and ARO-MMP7, which all use the same TRiM conjugate that targets the αvβ6 integrin for delivery to pulmonary epithelial cells.
I will talk about each individually, but we think one of the benefits of gaining an RNAi therapeutic delivery platform with increasing validation is that learnings from each platform program can directly inform advances in the others. We view de-risking events for one program, such as the data we saw with ARO-RAGE, as potentially de-risking to some extent to the others. ARO-RAGE is our investigational RNAi therapeutic designed to reduce expression of the receptor for advanced glycation end products, or RAGE, as a potential treatment for inflammatory pulmonary diseases, such as asthma. We are currently conducting a phase I/II-A randomized double-blinded placebo-controlled study in normal healthy volunteers, which is part 1, and in patients with mild to moderate asthma, which is part 2. The single ascending dose portion of the study includes five sequentially enrolled NHP cohorts with escalating single-dose levels.
The multiple ascending dose portion of the study includes five NHP cohorts and three asthma patient cohorts. We have fully enrolled and dosed all SAD cohorts. The final MAD cohort is anticipated to be fully enrolled in the coming weeks. We've also opened the patient cohorts with enrollment of the first cohort nearly complete. We reported very encouraging top-line results from four of the five SAD and MAD cohorts in NHPs. We do not yet have data from the fifth and highest dose level. We plan to report those results when they are available later this year. First, safety and tolerability assessments have been encouraging. Overall, there were no patterns of adverse changes in any clinical safety parameters, no reported serious or severe adverse events, and no dropouts related to drug or related to adverse events. In addition to safety and tolerability, ARO-RAGE demonstrated a strong pharmacodynamic effect.
The mean maximum reduction in soluble RAGE or sRAGE at the 92 mg dose as measured in serum after two doses on day one and day 29 was 80% with a maximum reduction of 90%. The lower doses of 10, 20, and 44 mg also show the dose response ranging from 31% to 59%. Serum sRAGE was also reduced after a single dose with a mean maximum reduction at the 92 mg dose of 56% and a maximum reduction of 68%. Reductions in sRAGE as measured in bronchoalveolar lavage fluid on day 31 after a single dose were also observed with a mean reduction at 92 mg of 75% and a maximum reduction of 92%.
We have additional planned cohorts in which BALF will be collected at later time points to quantify the additional lung level knockdown after two doses. Lastly, the duration of pharmacologic effect persisted for at least six weeks after the second administration of the 92 mg dose. This is the last time point currently available, and additional follow-up is ongoing. This suggests that monthly, bi-monthly or less frequent dosing may be possible with ARO-RAGE. All in all, we believe these data show good translation of preclinical results to humans. Moving on to ARO-MUC5AC, our investigational RNAi therapeutic designed to reduce production of mucin five AC or MUC5AC as a potential treatment for various muco-obstructive pulmonary diseases. We are currently conducting a phase I/2a study similar in design to the ARO-RAGE study, and we have begun enrollment of the asthma patient cohorts.
Sample processing and analysis for the NHP cohorts is ongoing, and we intend to report on initial data when available. The third pulmonary program in the clinic is ARO-MMP7, which is designed to reduce expression of matrix metalloproteinase 7 or MMP7 as a potential treatment for idiopathic pulmonary fibrosis or IPF. During the last quarter, we initiated a phase I/II-A single ascending dose and multiple ascending dose study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of ARO-MMP7 in healthy volunteers and in patients with IPF. Dose escalation in this study is ongoing. Let's discuss initial results with ARO-C3, our investigational RNAi therapeutic targeting hepatic C3 expression as a potential treatment for complement-mediated hematologic and renal diseases. Substantial unmet medical need remains in the treatment of multiple complement-mediated diseases, including IgA nephropathy, C3 glomerulopathy, and additional renal and hematologic indications.
We are conducting a phase I/II placebo-controlled dose escalating study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of ARO-C3 in adult healthy volunteers and patients with complement-mediated kidney disease. We originally planned to also include patients with PNH in this study, we have since decided to eliminate these cohorts. We may decide to study PNH patients in the future, we believe we can generate the data we need in the other populations. During the quarter, we reported top-line interim data and presented additional data at the seventh Complement UK Training Course and Symposium in April. In part 1 of the study in NHVs, ARO-C3 demonstrated a dose-dependent reduction in serum C3 with 88% mean reduction after 2 doses at the highest dose tested.
A dose-dependent reduction in AH50, a marker of alternative complement pathway hemolytic activity, was also observed with a 91% mean reduction at the highest dose tested. ARO-C3 had a long duration of pharmacologic effect. We think this suggests quarterly or less frequent subcutaneous dose administration is possible. Lastly, I'd like to briefly mention our announcement that CNS is the next area of focus in the TRiM platform. We've been working on CNS delivery for some time. Have not discussed these efforts publicly until now. Our TRiM platform now includes a construct optimized for intrathecal administration to the central nervous system with good distribution throughout the brain and in all relevant brain cell types.
ARO-SOD1, the first program to use this new delivery platform, is designed to reduce expression of superoxide dismutase 1 or SOD1 in the CNS as a potential treatment for patients with amyotrophic lateral sclerosis or ALS caused by SOD1 mutations. ARO-SOD1 was highly active against its target with a long duration of effect in multiple preclinical models that we believe suggest it may be administered quarterly or less frequently. In preclinical studies, ARO-SOD1 achieved 95% spinal cord tissue mRNA knockdown after a single intrathecal dose in SOD1 transgenic rats and maintained greater than 80% spinal cord tissue mRNA knockdown three months after a single intrathecal dose in non-human primates. ARO-SOD1 is on track for a CTA filing in the third quarter of 2023. We will talk more about our CNS platform and about ARO-SOD1 at the R&D Day in June.
I wanted to introduce the program because we are very excited about the potential for siRNA in the CNS. I will now turn the call over to Ken Myszkowski. Ken.
Ken Myszkowski (CFO)
Thank you, James, and good afternoon, everyone. As we reported today, our net income for the quarter ended March 31st, 2023, was $48.7 million or $0.45 per share based on 108.1 million fully diluted weighted average shares outstanding. This compares with net income of $44.4 million or $0.41 per share based on 107.9 million fully diluted weighted average shares outstanding for the quarter ended March 31, 2022. Revenue for the quarter ended March 31, 2023, was $146.3 million, compared to $151.8 million for the quarter ended March 31st, 2022. Revenue in the current period primarily relates to our collaboration agreements with Takeda and GSK.
Revenue is recognized as we complete our performance obligations, which include managing the ongoing AATD phase II clinical trials for Takeda. There remains $31 million of revenue to be recognized associated with the Takeda collaboration, which we anticipate will be recognized over the next year. Additionally, in the quarter ended March 31st, 2023, Takeda dosed the first patient of its phase III REDWOOD clinical study of Fazirsiran, triggering a $40 million milestone payment, and GSK dosed the first patient in its phase IIb trial of GSK4532990, formerly known as ARO-HSD, in March, triggering a $30 million milestone payment. Revenue for these milestone payments will be reflected in fiscal Q2, while cash receipt will be in fiscal Q3.
Revenue in the prior period primarily related to the recognition of $120 million associated with the upfront payment received from GSK, in addition to a portion of the payments received from our license and collaboration agreements with Takeda and Horizon. Total operating expenses for the quarter ended March 31st, 2023 were $98.1 million, compared to $110.3 million for the quarter ending March 31st, 2022. The key driver of this change was decreased candidate costs and lower stock compensation expense. The decreased candidate costs were primarily due to the reduction in outsourced manufacturing and toxicity studies, study costs relating to our cardiometabolic studies as the company's pipeline of candidates progressed through clinical trials in 2022.
Net cash used by operating activities during the quarter ended March 31st, 2023 was $107.2 million, compared with net cash provided by operating activities of $1.4 million for the quarter ended March 31st, 2022. Prior period includes a $120 million cash inflow from GSK, from the GSK licensing and collaboration agreement. We expect our operating cash burn to be at the lower range of $70 million-$90 million per quarter in fiscal 2023. We expect capital expenditures of approximately $90 million in the second half of fiscal 2023 as we near completion of our footprint expansion projects, including GMP manufacturing.
Turning to our balance sheet, our cash and investments totaled $559.8 million at March 31st, 2023, compared to $482.3 million at September 30, 2022. The increase in our cash and investments was primarily related to the $250 million payment from Royalty Pharma, offset by our operating cash burn along with continuing capital projects. Our common shares outstanding at March 31st, 2023 were 106.9 million. With that brief overview, I will now turn the call back to Chris.
Christopher Anzalone (President and CEO)
Thanks, Ken. We've already had a busy 2023 and have made a great deal of progress on many fronts. We anticipate that the middle and into the second half of the year will be even busier and offer even more opportunities to demonstrate what our pipeline can bring to patients. We've always been clear that we believe for RNAi to reach its full potential as a revolutionary therapeutic modality, it needs to be able to address gene targets wherever they are. That is no longer a long-term goal. Between the liver franchise, the pulmonary franchise, the skeletal muscle franchise, the CNS franchise, and the adipose franchise, we have the opportunity to help a lot of people and create a substantial amount of value. This is just the start.
I expect us to blow through 20 and 25 and build a uniquely large and diverse pipeline of important medicines across multiple therapeutic areas. I have never been more excited about our near-term prospects or more proud of this amazing team. When you combine a technology that works with talented innovators who are aligned as to mission and empowered to make decisions and push science, incredible things can follow. We hope you can join us on June first at our R&D Day to hear more. Thank you for joining us today, and I would now like to open the call to your questions. Operator?
Operator (participant)
All right. Can you hear me okay?
Christopher Anzalone (President and CEO)
Yes.
Operator (participant)
All right. Just making sure you can hear me okay. Thank you, all. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your questions, please press star one one again. Please stand by while we compile the Q&A roster.
Christopher Anzalone (President and CEO)
I also wanna just remind the analysts that in the interest of time, we like to limit the questions to one question and one follow-up.
Operator (participant)
All right. Our first question comes from the line of Maury Raycroft with Jefferies.
Maury Raycroft (Equity Research)
For taking my question. I was gonna ask if you can provide some additional detail on what new data we will see at the R&D Day from the cardiometabolic and pulmonary programs specifically. As follow-up for the phase III PALISADE study, you mentioned readout in second quarter 2024. I'm just wondering if you will report on patient baseline characteristics at the R&D Day or potentially at a medical meeting this year.
Christopher Anzalone (President and CEO)
Thanks, Maury. There's, let's see, there's several questions in there. What are we gonna be talking about at the R&D Day? We'll be overviewing the pulmonary programs, of course, and we'll give you what data we will have at the time. We expect, as I mentioned in the prepared remarks, we expect to have some early normal healthy volunteer data from MUC5AC. I don't expect that we'll have MMP7 data, but we'll, and we'll also likely have a bit more of ARO-RAGE. We also, we know we'll talk about those indications or those targets as well as the indications.
On the cardiometabolic side, it'll be a good chance for us to talk broadly about how we see ARO-ANG3 and ARO-APOC3 fitting into treatment paradigms. We'll talk a bit about more recent data as well. We'll talk about the new CNS platform. We'll probably go into a little bit of the adipose platform a bit. We'll talk about SOD1, we'll talk about the portion of ALS that we'll be addressing with SOD1. I'm sure I'm forgetting some things. It'll be a bit of a busy day. We have a lot going on, as you know, Maury, and we hope to touch on most of what we're doing.
Maury Raycroft (Equity Research)
Got it. Anything additional you can say about the PALISADE study? Sounds like that's moving along, and you'll have that readout second quarter of next year. Will you provide more on the types of patients that you've enrolled into the study? Is that something we can learn more about this year?
Javier San Martin (Chief Medical Officer)
Sure. I think we will review the entry criteria, and that will give you a really good idea. I don't think we're gonna look at the baseline characteristics and report that ahead of the end of the study. This is a phase III registration study. It's going really well. I will review the key inclusion criteria so you get a sense of the patient population.
Maury Raycroft (Equity Research)
Got it. Okay. Thanks for taking my questions.
Christopher Anzalone (President and CEO)
Sure.
Operator (participant)
Okay. All right. Thank you. For our next caller, we have Eliana Merle with UBS. Please go ahead. Your line is now open.
Eliana Merle (Executive Director and Biotech Equity Research)
Hey, guys. Thanks so much for taking the question, congrats on the recent pulmonary data. Maybe just in terms of the patient cohorts that we can expect later this year, I guess, how should we think about what endpoints in particular you'll be reporting out, I guess, between like FeNO, FEV1, and what you'll be looking to see in some of that early data? Thanks.
Christopher Anzalone (President and CEO)
James, do you wanna address that?
James Hamilton (Chief of Discovery and Translational Medicine)
Sure, yeah. For RAGE, we're enrolling patients with mild to moderate asthma, and I think the these are relatively small cohorts. They're not powered for FEV1, although we will be measuring FEV1. Some of the key biomarkers that I think could be indicative of pathway engagement, that knocking down of RAGE is affecting the inflammatory pathways are things like FeNO, which is an IL-13 driven parameter. We're also measuring blood and sputum eosinophils. I think that'll be interesting as well. Periostin is also IL-13 driven. As you mentioned, the FEV1 and spirometry.
Eliana Merle (Executive Director and Biotech Equity Research)
Great. Thanks. Just a quick follow-up. I mean, maybe just what your latest thinking around what the clinically meaningful level of target knockdown as you look to sort of select the go-forward doses, and how this could differ between RAGE and MUC5AC?
Christopher Anzalone (President and CEO)
Yeah. You know, that's a really good question, but it's one that we just can't answer. You know, no one's been able to reduce expression of MUC5AC or RAGE in the past, or MMP7 for that matter. there's just. We don't have a good biomarker for what that bogey could be. We will say, however, though, for RAGE, for instance, you know, we were seeing mean max knockdown after two doses in the serum, at least at around 80%. In the animal models that we have studied, that was more than enough to, you know, to affect phenotype. These are severe models. That gives us some confidence, but again, they're just models.
You know, we really have to wait to see in humans what this looks like. We are excited about that level of knockdown. It's a good deep knockdown, and it appears to be durable. We are optimistic that we are on the board for RAGE and for MUC and for MMP7, and as well as for future targets. You know, we believe that because this is a target-rich environment, it feels likely to us that if you can, you know, knock a gene product down by 80% or so, then you're going to affect disease stage in at least, you know, some of these, some of these targets.
Eliana Merle (Executive Director and Biotech Equity Research)
Awesome. Thanks, guys.
Christopher Anzalone (President and CEO)
You're welcome.
Operator (participant)
All right. Thank you. Our next question comes from the line of Joel Beatty with Baird. One moment.
Joel Beatty (Biotechnology Equity Research Analyst)
The first one is on, how could the profile of ARO-SOD1 potentially compare with tofersen? Second question is, can you provide a little more color on, why I think eliminating the study of some of the PNH patients from the ARO-C03 study?
Christopher Anzalone (President and CEO)
Thanks.
James Hamilton (Chief of Discovery and Translational Medicine)
Yeah, sure. Thanks for the question. With regards to SOD1, I think that we will be competitive and likely better in terms of depth of gene target knockdown and extremely importantly for this route of administration, for intrathecal route of administration duration, which is key if we can do intrathecal administration every three or even every six months. I think that would be much preferable for patients, you know, compared to every two weeks or every month dosing with tofersen. With regards to PNH, it was really a matter of competition. PNH is a small market that's reasonably well addressed with a lot of ongoing competing clinical trials and competing marketed or soon to be marketed therapeutics.
We thought that, you know, we have limited resources and best to put those resources to work elsewhere.
Joel Beatty (Biotechnology Equity Research Analyst)
Great. Thank you.
Operator (participant)
All right. Thank you so much. Our next question comes from the line of Mani Foroohar. I'm sorry, did I say your name properly?
Mani Foroohar (Senior Managing Director)
Close enough. Thanks for taking my question.
Operator (participant)
With SVB. Go ahead. Sorry.
Mani Foroohar (Senior Managing Director)
I wanna dive in a little bit on some of the modeling impact financially of the updates you've given us. Obviously, you've got a NASH program back in your hands, the HBV remains in J&J's hands. You know, you've talked about moving a number of other assets forward, CNS. How should we think about what this means for the tempo of CapEx and OpEx going forward from here? To what extent is that already contemplated in the commentary you gave us last quarter and prior around, you know, ramping CapEx and OpEx spend to drive growth?
Christopher Anzalone (President and CEO)
Sure. This was already factored into our, to our plans over the next few years. I don't think anything that's happened over the last few couple of quarters has materially changed those things. You know, we are growing so fast now, you know, Manny, as you know, and, you know, we've got, you know, 12 clinical programs, seven of them are wholly owned. I think we'll have 14-16 clinical programs by the end of this year. We have an awful lot of opportunity to partner judiciously. You know, that's as you know, that's an important part of our model. I believe that we are gonna have 20 clinical programs or marketed products, you know, by 2025.
And no company, I don't think, certainly not a company our size, can commercialize all of those. We have an awful lot of ammunition to, you know, to find good partners to bring in non-dilutive capital. That continues to be an important part of our ongoing financial planning. I think that job gets even easier, you know, as we expand these platforms to include CNS, to include skeletal muscle, pulmonary, adipose. We've got an awful lot of opportunity to find good partners. You know, while still holding on to a very large number of, you know, we think potentially important medicines to drive value for us.
Mani Foroohar (Senior Managing Director)
Okay. That makes a lot of sense. Thank you.
Christopher Anzalone (President and CEO)
Sure.
Operator (participant)
All right. Thank you so much. All right. One moment. Our next question comes from Mayank Mamtani with B. Riley Securities. Your line is now open.
Mayank Mamtani (Senior Managing Director, Group Head of Healthcare Research, and Senior Biotechnology Analyst)
Good afternoon. Thanks for taking our question. Just maybe on MUC5 and ARO-RAGE, just can you clarify how long or is the chronic tox data available from that, from the preclinical study standpoint? You know, at a, at a high level, like, the differences between the candidate design delivery, I know the PD marker is clearer for RAGE. Is there anything that we can glean from the different programs that, you know, help us think about the de-risking that is underway for the pulmonary delivery? I have a quick follow-up.
Christopher Anzalone (President and CEO)
Sure. The chronic tox is not complete. You know, those are ongoing. The next question is what is de-risking events? Well, James, do you wanna address? Wanna address, more data through this year.
James Hamilton (Chief of Discovery and Translational Medicine)
You know, we will have, you know, more data on knockdown healthy volunteers shortly. We'll have patient data, you know, late this year. Then we'll have the chronic tox data. I guess all of those are, you know, somewhat, you know, incrementally de-risking. You know, we feel really good about the changes we've made in ARO-RAGE, ARO-MUC5AC, ARO-MMP7 compared to ARO-ENaC, you know, a year ago. These are substantially more potent constructs. You know, we're using, you know, in broad terms, and James, correct me if I'm wrong here, around 1 mg per kg, you know, is at this fourth dose that we reported on.
Christopher Anzalone (President and CEO)
A little less.
James Hamilton (Chief of Discovery and Translational Medicine)
A little less.
Christopher Anzalone (President and CEO)
For RAGE.
James Hamilton (Chief of Discovery and Translational Medicine)
A little less than 1 mgs per kg. As you may recall, Mayank, in the pulmonary day 1+ year ago or around 1 year ago, I guess, we graphed the various tox studies and where we started to see local lung inflammation and over six months. The cumulative dose is around 100 mgs per kg, where we started to see that the inflammation. We feel like we are in good shape here, that we should be substantially underneath that for RAGE.
You know, we'll see where we are with MMP7 and with MUC5AC, but at least so far the data we've seen is encouraging to us that we have something that's extraordinarily more potent than the ARO-ENaC. Again, remember, and again, and I know you'll recall this, our dosing for ARO-ENaC was three daily doses every two weeks. For ARO-RAGE, we are once a month. As James pointed out, we have data out through six weeks and we're still seeing, you know, a deep knockdown. So this may not be once a month dosing, it may be once every two month dosing, it may be once every three month dosing. So we feel like we're in good shape here.
Mayank Mamtani (Senior Managing Director, Group Head of Healthcare Research, and Senior Biotechnology Analyst)
Great. Yeah, look forward to seeing more at the R&D day. Just another high level question. You know, as you decided on DUX4 muscle for externalization and not maybe on SOD1 and CNS. I mean, how are you thinking, you know, about which muscle types to, you know, go forward with internally versus externally? You know, for DUX4 muscle, skeletal muscle, are there like kind of deal analogs that exist out there for the kind of value you might be looking for? Thanks for taking our questions.
Christopher Anzalone (President and CEO)
Sure. Let me be clear. We've not made a decision on partnering ARO-DUX4. We were gearing up to file a CTA. We are ready to go. We even had chronic tox done, you know, as I mentioned. We had, you know, substantial interest from several companies and we decided to press pause and see where those go. That's where we are right now. We'll see if those, if any of those turn into an actual deal. If they do, that's great. We know hopefully we'll find the right partner for that. If not, that's great too, because we believe in the drug, we believe in the platform, and we'd be happy to push that into clinic ourselves.
You know, it just made sense for us to wait a couple of months to see, you know, to see where these things go. We are in a good spot, I think, for not only ARO-DUX4, but also the follow-on clinical candidates that as I mentioned, you know, we think will be CTA ready in the fourth quarter. We're in a good spot where we are almost agnostic. You know, I'm happy to bring both those to the clinic ourselves.
Also I'm happy to listen to offers and if there are good companies who can, you know, who have, you know, experience, in these types of, in developing these types of drugs, and come up with proper value, then we're happy to talk about that as well.
Mayank Mamtani (Senior Managing Director, Group Head of Healthcare Research, and Senior Biotechnology Analyst)
Got it. High-class problem to have. Thanks for taking our question.
Christopher Anzalone (President and CEO)
You're welcome.
Operator (participant)
All right. Thank you so much for that. A quick note you all, please, do not start your questions until I let you know that your line is now open. Our next question comes from Patrick Trucchio. I apologize if I'm saying your last name wrong, with H.C. Wainwright & Co.. Patrick, your line is now open.
Patrick Trucchio (Managing Director)
Thanks, and good afternoon. Just a follow-up question on the CNS platform. I'm wondering if you can discuss the preclinical data that's been generated to date and the level of confidence in the safety profile of these siRNA constructs and delivery methods as you transition to human trials. Secondly, I'm wondering if there's an update on the HBV program and what that collaboration may look like going forward.
Christopher Anzalone (President and CEO)
Sure. Let me I'll give you the high level answer to the CNS question and then James can give you more granular answer if necessary. We have done the GLP tox studies and we feel comfortable about the safety margins there. We've done exhaustive non GLP tox studies with ARO-SOD1 as well as other potential candidates, and we feel good about what we're seeing. With respect to HBV, I don't have anything to update you on now.
I, you know, I believe that Janssen is running their process and so, I don't have any information on where that's gonna be in, you know, the next, you know, over the next, several quarters.
James Hamilton (Chief of Discovery and Translational Medicine)
Yeah. I think I would just add on the CNS platform, we'll share more of the specific data at the Analyst Day in June. We're seeing 80%-90% reduction in various brain regions in both rodents and non-human primates with good duration that should support at least a Q3-month dose administration. We'll share more early next month.
Patrick Trucchio (Managing Director)
That's helpful. Thank you very much.
Christopher Anzalone (President and CEO)
You're welcome.
Operator (participant)
All right. Thank you so much, Patrick. Our next question comes from the line of Keay Nakae with Chardan. Right.
Keay Nakae (Director of Research and a Senior Research Analyst)
Thank you. Question on SOD. Anything you have learned from Biogen's development, tofersen that you think you might be able to learn from and benefit from as you proceed into the clinic?
Christopher Anzalone (President and CEO)
Yeah. I mean, this, it's very helpful to have, you know, another asset out there that's hitting the same gene target that's kind of gone through the whole process. I think, you know, learned a lot from what they did in their early clinical studies, their phase I/II design, and then their pivotal as well.
Javier San Martin (Chief Medical Officer)
I would like to add that the regulatory precedent is very, very important, and the accelerated approval based on a validated biomarker for a disease like this, I think it's huge for the field. It's really important for our program. It will enable us to go a lot faster. I think in this condition and thanks to their work, there is a very good data of what the natural history of this SOD1 ALS patient looks like, and also what the benchmark for efficacy, both in neurofilament with and also clinically. I think this success program, it open the door for advance our program even faster.
Keay Nakae (Director of Research and a Senior Research Analyst)
Great. Thank you.
Operator (participant)
All right. Thank you so much. Our next question comes from Prakhar Agrawal.
Agrawal, I'm sorry for messing your last name up, with Cantor Fitzgerald. One moment. Your line is opening up now. One moment.
Prakhar Agrawal (Managing Director)
Thanks for taking my questions, and congrats on the quarter. First question is on asthma. For targets such as RAGE, given you're testing it in a broad population, how much benefit on lung function endpoints such as FEV1 you think you need to show to give you confidence on moving it into later-phase trials? Trying to better understand what benchmarks are you looking at. I had a quick follow-up.
Javier San Martin (Chief Medical Officer)
Yeah. James already made the point that we're not looking at efficacy data in these phase I studies. This program will require a proper phase II study to show efficacy and probably FEV1. If you look at the benchmark with the biologics that are already approved, either dupilumab or tezepelumab, you are looking about 100 milliliters improvement, approximately in FEV1. That's the benchmark, I think, for a phase II study. That's also something that we will discuss at the analyst day in June 1st.
Prakhar Agrawal (Managing Director)
Thank you. Just curious as to the broader long-term strategy in asthma, given you have two targets. Is the plan to continue developing both assets into phase II, phase III, or you could make a decision to prioritize one over the other at a certain time? What drives that decision? Thank you.
Christopher Anzalone (President and CEO)
Data. You know, as with ARO-ANG3 and ARO-C3, look, these are two targets that are interesting. They will be addressing asthma in two different ways. We look forward to seeing how patients respond to each of them. It could be that there are populations of patients that respond better to one than the other. It could be that one is superior, you know, in all patient populations. We're just gonna have to wait and see. It's a good problem to have because we think we have a good opportunity for both of them to be important medicines.Let's just see what the data show over the next couple years.
Javier San Martin (Chief Medical Officer)
The other thing I would say is remember, MUC5AC is a very muco-obstructive type of drug, and there are other muco-obstructive diseases that are very prevalent, and their unmet medical need is very significant. As Chris said, we will evaluate those other indications such as COPD or bronchiectasis as well as we go along.
Operator (participant)
All right. Thank you so much. Our next question comes from Luca Issi with RBC Capital. One moment for your line to open.
Luca Issi (Senior Biotechnology Analyst)
Thanks so much for taking my question. I have a few maybe, Chris, now that you have proof of concept here, I would say proof of targeting agent, I should say in lung, how are you thinking about business development? Is this a good time to find a partner, or are you hoping to further de-risk the platform before you entertain BD discussion, or are you planning to keep pulmonary in-house full stop? Any thoughts there would be much appreciated. Maybe on SOD1 ALS, can you just talk about why going after this indication? Obviously, you're a few years behind Biogen. There are only 200-300 patients in the United States. Why not going after other targets with bigger TAMs like maybe tau or ataxin-1 or others? Again, any thoughts there are appreciated. Last one quickly on CapEx.
If I recall it correctly, last time you mentioned that you were expecting to invest up to $200 million in CapEx to build a facility in Verona, Wisconsin. However, I think the Form 10-Q suggests that the number is now between $200 million and $260 million. Wondering if you can clarify that. Thanks so much.
Christopher Anzalone (President and CEO)
Sure. Thanks, Luca. Ken, you wanna address the last first?
Ken Myszkowski (CFO)
Sure. The $200 that we mentioned was the amount that we thought we were going to spend this year. The total project was anticipated to be $280 million-$290 million in total. We have spent less than the $200 million this year. We expect to spend probably around $90 million more in the second half and probably about $100 million toward that in fiscal 2024.
Christopher Anzalone (President and CEO)
Okay. The other two questions, the first one was around pulmonary partnering. Look, we aren't rushing to partner the current three assets anytime soon, or frankly, even the broader platform right now. We wanna learn more. We want additional data. I don't think that we should be in a hurry to do that. This is an important space for us. You know, as we've said in the past, we don't see two or three or four drugs here. We see eight or nine or 10 drugs coming out of the pulmonary platform. There are 16,000 or so pulmonologists in the U.S.
We like the idea of building a commercial infrastructure to address that market with several drugs in our own bag. Having said that, it's probably not gonna be, you know, ten, eleven, twelve drugs. There will be partnering within this platform, I think, at some point. I don't think it makes sense to spend too much time on it at this point because we're, you know, we're still early days. This is a good opportunity for us, again, you know, internally to create value and to serve patients ourselves, but also to find additional partners in order to really, you know, extract proper value from this part of the TRiM platform.
The second question I do with SOD1, why are you going after SOD1 instead of something else? Well, I'll tell you, we are also going after something else. You know, we're an and company, we're not an or company. It just so happened that SOD1 popped first and we think it's a good place for us to be. We think we'll stack up well against tofersen. As we talked about, it's kind of nice, you know, to learn from somebody and accelerate our pathway because somebody went ahead of us. If we have, you know, a better drug for those patients, then so much the better. You know, we believe in SOD1, we believe in helping those patients who need it.
That's just the first of we think many. You know, like the pulmonary space, CNS is a target-rich environment, and there's no shortage of important targets that we will be going after.
Operator (participant)
All right. Thank you so much, Luca. Our last question is coming from the line of Madhu Kumar with Goldman Sachs. One moment while your line opens.
Madhu Kumar (Senior Biotechnology Analyst)
Hey, thanks for taking our question. One science question and then one big picture strategy question. The science question is, what do you think is the fundamental floor for sRAGE in the serum from extra pulmonary sources? Like basically, how far do you think serum sRAGE can potentially get to if you really were to just wipe it out in a lung? Conversely, what is the floor in the lung, like say, in bronchoalveolar lavage for sRAGE as well? A big picture strategy question is related to Luca's question. Effectively, like what would you need to see to really reposition the company to focus on these 8, 9 or 10 lung indications relative to the current menagerie of liver-directed drugs?
Christopher Anzalone (President and CEO)
Want to address the...
James Hamilton (Chief of Discovery and Translational Medicine)
Sure, yeah. The floor of sRAGE, maybe the second part of that question is easier. I think, you know, measuring, if you assume that the BALF sRAGE is exclusively coming from the lung, you know, I mean, the floor would be close to zero, that you'd maybe get a small amount of sRAGE coming from endothelium or some of the other cell types. Really the most of the sRAGE in the BALF should be coming from the type II alveolar epithelial cells. Now, that doesn't mean that we'd be able to get, you know, 99.9% knockdown. I think, even with our best triggers in the liver, we're getting 95% plus knockdown. That's just not the way RNAi tends to work.
In the serum, I don't think we know the answer to that really. I think the best indication are the data that we've shared so far that you can achieve, you know, 90% reduction in the blood. It's not entirely clear how much sRAGE in the blood is coming from extra pulmonary sources although I think it is clear that most of it is coming from the lung. And that number may vary from person to person or either in between healthy volunteers and asthma patients. I think we're still trying to sort that out, what's the floor in sRAGE in the blood. It was one of the reasons why we added an additional dose level to this healthy volunteer study.
Javier San Martin (Chief Medical Officer)
I think we're getting very close because we've already seen 90%. If you look at ARO-C3, AAT, that's what you see, 80%-85%. I think we're getting very close to the floor. It's almost complete inhibition.
Christopher Anzalone (President and CEO)
Madhu I'll address the second question. I'm just curious, when you talk to J&J and Pfizer and others, do you refer to their large pipeline as menagerie of drugs? Look, we're not going to refocus this company to be a pulmonary company. I think there's no reason to do that. We actually like this strategy of having a broad pipeline across therapeutic areas. I think we can do it in part, I think we can do it because we are relying on well-validated targets and hopefully we stay disciplined and we continue to do that.
Ultimately I think that we can create the most value by being a relatively diversified company. You know, look, pulmonary is a nice deep well so that is a place I think that where we will have, you know, several or more of our wholly owned drugs, but that won't be the only one.
Madhu Kumar (Senior Biotechnology Analyst)
All right. Thank you very much.
Christopher Anzalone (President and CEO)
Thanks, Madhu.
Operator (participant)
All right. Thank you all so much for your questions. I would now like to turn it back to Chris Anzalone for our closing remarks.
Christopher Anzalone (President and CEO)
Thanks very much for joining us today, and we look forward to speaking with you on June 4th.