Arrowhead Pharmaceuticals - Earnings Call - Q3 2015

Transcript

Speaker 0

Ladies and gentlemen, welcome to the Arrowhead Research Corporation Fiscal twenty fifteen Third Quarter Financial Results Conference Call. Throughout today's recorded presentation, I would now hand the conference call over to Vincent Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, Vince.

Speaker 1

Thank you, and good afternoon, everyone, and thank you for joining us today to discuss Arrowhead's results for its fiscal twenty fifteen third quarter ended June 3035. With us today from management are President and CEO, Doctor. Christopher Anzalone Chief Operating Officer and Head of R and D, Doctor. Bruce Gibbon and Chief Financial Officer, Ken Myszkowski. Management will provide a brief overview of the quarter and will then open up the call to your questions.

Before we begin, I would like to remind you that comments made during today's call may 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, but are not limited to statements regarding the anticipated safety and or efficacy of ARK-five twenty, ARK AAT, ARKF12 and our other programs as well as anticipated timing for study enrollment and completion and the potential for regulatory and commercial success. They represent management's current expectations and are inherently uncertain. Thus, results may differ materially.

Arrowhead undertakes no duty to update any of the forward looking statements discussed on today's call. You should refer to the discussions under Risk Factors in Arrowhead's Annual Report on Form 10 ks and the company's quarterly reports on Form 10 Q for additional matters to be considered in this regard. With that said, I'd

Speaker 2

like to turn the call over to Doctor. Christopher Anzalone, President and CEO of the company. Chris? Thanks, Vince. Good afternoon, everyone, and thank you for joining us today.

During the recent period, we made important progress on our clinical candidates, ARK-five twenty for chronic hepatitis B infection and ARK AAT for liver disease associated with alpha-one antitrypsin deficiency. We also made good progress on our preclinical pipeline and the underlying DPC delivery platform. I'll discuss a few of these highlights and then hand the call over to Bruce Given, our Chief Operating Officer and Head of R and D, who will provide an overview of our clinical programs followed by Ken Myszkowski, our Chief Financial Officer, who will give a review of the financials for the fiscal twenty fifteen third quarter. Before I talk about highlights from the quarter, I want to announce our plan to hold an Analyst and Investor Day on September 2435 to discuss ARK-five twenty in detail and provide data from the clinical program and from a non clinical study in chronically infected chimpanzees. We have learned a great deal about ARK-five twenty and the biology of hepatitis B during the course of our chimpanzee study that spanned over a year as well as from our Phase 2a clinical study.

As we discussed in our last conference call, the Phase 2a included four cohorts at doses one, two, three and four milligrams per kilogram and was then expanded to include three additional cohorts. These additional cohorts were designed to test some of the hypotheses that emerged from our research program including the CHIM study. We think the format of an Analyst Day will allow us to provide a more comprehensive overview of what we are learning than if we simply provided top line results in a press release. Some of what we have learned was rather surprising to advisors. We believe that our work represents a real advance for the HBV field and has helped us move our program forward.

We have lined up a panel of international experts to talk about the HBV field and how our new data may challenge some widely accepted theories. These panelists include Doctor. Robert Gisch, Doctor. Steven Lachernini and Doctor. Robert Lanford.

The live event for institutional investors and analysts will be held in New York City. In addition, it will be webcast live and available on the Arrowhead website. We will provide more information about the event as the date approaches. We are also happy to announce that reports from the CHIMP study will be presented at AASLD in November. Turning to review of the quarter and the period since our last conference call, we continue to execute on our development programs and made good progress with ARK-five twenty, ARK AAT and our underlying technology platform.

Starting with ARK-five twenty, we completed dosing of more than a year long study in chronically infected chimpanzees. As I mentioned, this yielded some very interesting findings, some of which have helped to guide the clinical development of ARK-five twenty. In addition to completing dosing of four cohorts received single ARC-five twenty doses of one through four mgs per kg in a Phase 2a study, we also initiated dosing in three new cohorts. We plan on discussing all seven cohorts at the Analyst Day. Data from the chimpanzee study was also has also contributed to the design of our multi dose studies and upcoming combination studies.

During the quarter, we achieved regulatory clearances for studies titled HEPARC two thousand and two, 2,000 three and two thousand and four, which are three separate multi dose Phase 2b studies in Germany, Hong Kong and The United States. Bruce will talk more about these in a moment, but we are very pleased that the studies are moving forward. ARK-five twenty was never intended to be a single dose therapy, and we are eager to assess its activity after multiple doses and compare those results to results from our long term chimpanzee study. We also made good progress on Arc AAT, our clinical candidate for the treatment of liver disease associated with alpha-one antitrypsin deficiency. We are excited that Arc AAT was granted orphan drug designation by the FDA, which provides important incentives for sponsors to develop drugs that treat rare diseases.

These incentives include increased engagement with the FDA, exemption from license application fees and potentially future product specific regulatory fees during development, The opportunity to apply for R and D funding, tax credits, an increased chance of prior review and seven years of orphan exclusivity at the time of new drug application or NDA approval. We see the development path for ARC AAT as relatively straightforward and receiving orphan designation makes us more confident that provided we can demonstrate that ARC AAT is safe and effective, we can move the candidate through clinical and regulatory process quickly. The first step in this process is establishing a safety profile and assessing early signs of activity. During the quarter, we completed dosing of Part A of RKAT Phase volunteers and transitioned the study into Part B, which is designed to enroll patients with PIZZ genotype AATD. This transition was triggered when a predetermined knockdown target was achieved.

We subsequently began dosing Part B at a single site in Australia and have also received regulatory clearance to expand Part B at additional sites in The United Kingdom and New Zealand. There are other regulatory submissions pending and we hope to bring on additional sites in other countries shortly. We've also made important progress on our platforms over the past quarter. Of course, we view ARC-five 20 and ARC AAT as significant direct value drivers, but we also see them creating value as proofs of concept for other targets. We believe the demonstration of good safety profiles and activity in humans will help to derisk future programs built on the same platforms.

As such, we see potential rapid value creation in our pipeline and we are focused on broadening that out. We have several active preclinical programs against various disease targets and we presented data from one of them ARKF12 at the TIDES conference during the quarter. ARKF12 is designed to reduce the production of Factor XII to potentially treat both thrombosis and angioedema. We are pleased to announce today that ARKF12 has been nominated as our next clinical candidate. We see hereditary angioedema or HAE as an attractive target for RNAi options.

In our development program, have seen knockdown as deep as ninety eight percent in non human primates with good durability. Our current planning estimates monthly or perhaps even less frequent dosing, although ultimately this will be determined by our findings in clinical human testing. In addition to ARKF12, we have other promising preclinical programs that we are currently assessing as potential clinical candidates. We intend to present data on some of these targets at scientific conferences later in the year. Lastly, I'd like to touch on progress we've made expanding our underlying platforms over the past quarter.

This includes the DPC delivery system and an extensive array of RNAi trigger structures, chemistries and modifications. We published data on advancements made to the DPC delivery system designed to enable subcutaneous and extrahepatic delivery. This is an important step forward. These new formulations open up a wide range of disease targets that Arrowhead expects to be able to address in the future. Regarding trigger structures and modifications, we've made great strides with the RNAi technology we acquired from Novartis earlier this year.

Teams at Novartis generated impressive data with novel proprietary structures we believe fall outside current fundamental RNAi IP, as well as novel intracellular targeting ligands that increase RNAi efficiency. We are happy to report that these technologies are working well in our hands and these new tools are now part of our development process. These give us more flexibility and capabilities both from a therapeutic and patent standpoint. In fact, we have been exploring several new trigger options in ARKF12 and other development programs and have found very good potency and reliable manufacturability. Based on this work, we expect to file an IND or equivalent for ARKF12 in 2016.

In addition to being highly active, the economics of the new trigger are substantially better than one relying on a license for traditional canonical siRNA. With that overview, I would now like to turn the call over to Doctor. Bruce Given, our COO and Head of R

Speaker 1

and D. Bruce? Thank you, Chris and good afternoon everyone. We typically talk about the ARK-five twenty clinical studies in terms like Phase IIa, Phase IIb and HepARC-two thousand and two, but I don't think we've ever explained at one time what all these studies are. There are now multiple ongoing and initiating studies of ARK-five twenty.

I think that a helpful thing to do for our investors is to briefly describe each study and identify them by description and study number to help ensure everybody has a clear picture about what we are talking about when we refer to a specific study. A copy of the prepared remarks for this call will be available on the Events page of our website if you want this description for future reference. HEPARC-one thousand and one was our initial Phase one single dose escalation study of ARK-five twenty administered intravenously to healthy adult males and females. This was conducted in Australia and is complete. The purpose was to assess safety tolerability and pharmacokinetics.

HEPARC-two thousand and one is a multicenter single dose escalation study of ARG-five twenty administered to patients with chronic immune active HBV infection maintained on entecapir therapy. This is the ongoing study that we typically refer to as our Phase IIa study and is being conducted in Hong Kong. There were four initial cohorts that received ARK-five twenty doses of one, two, three or four mgs per kg and then an additional three cohorts were subsequently added. We plan to discuss what these three new cohorts are and overall results from all seven cohorts at our Analyst Day in September. This study is designed to give us an indication of early activity and determine tolerability in a patient population.

HEPARC-two thousand and two is a Phase IIb multicenter multi dose study to determine the depth of hepatitis B surface antigen reduction following ARK-five twenty in combination with entecavir or tenofovir in patients with HBV antigen negative chronic HBV. It is a parallel design study with patients receiving four doses once every four weeks of either one mg per kg of ARK520, two mg per kg of ARK520 This study has received regulatory approval to begin in Germany and Hong Kong and we intend to also open additional sites for enrollment in South Korea pending approval from regulatory authorities and institutional review boards. The goal is to assess multi dose activity as measured by reduction in circulating surface antigen in addition to other measures. HEPARC-two thousand and three is similar to two thousand and two, but will enroll patients with HBV antigen positive chronic HBV, so they're sister studies.

It has also received regulatory approval in Germany and Hong Kong and is also pending approval in South Korea. PEPARC2004 is a multi dose repeated multicenter, excuse me, multicenter repeated dose study to determine the depth of surface antigen reduction following ARK520 in combination with entecavir or tenofovir in patients with chronic HBV, which is being conducted in The U. S. This study is planned to enroll up to 12 patients receiving either one mg per kg of ARK520 or placebo. Each patient will receive three total doses once every four weeks.

The goal is to assess multi dose activity as determined by reduction in surface antigen in addition to other measures such as assessing for any effects on entecavir or tenofovir pharmacokinetics with administration of ARK-five twenty. HEPARC-two thousand and five was designed as a study in HBV antigen positive patients in combination with entecavir or tenofovir. This study was planned to enroll at a single site in Australia. It was closed before enrolling any patients to make way for a new study, HEPARC-two thousand and eight, which I will discuss in a moment. We also have HepARC-two thousand and six and two thousand and seven, which are multi dose studies that are in the late planning stages.

We'll provide additional details on these studies when their planning has matured. HepARC-two thousand and eight, which will be known as the Monarch study is intended to be a study of various dosing regimens and combinations. It is quite similar to the approach taken by Pharmaset in the HCV field. It will have a flexible iterative design, so we can ask specific questions about ARK-five twenty in small open label cohorts and quickly initiate additional cohorts based on answers that we get or the availability of new agents to be tested in combination. Our goal is to begin Monarch as soon as possible and we currently believe that we will be able to initiate the study in the fourth quarter.

Stay tuned for more information about this study as we consider it very important. There is also one important ARK-five twenty preclinical development program worth mentioning. We have completed our six month rat and nine month primate GLP toxicology studies for ARC-five twenty without any perceived change in the safety profile. The availability of these data clears the way for a year or more treatment with ARK-five twenty from a toxicology testing perspective. This is all the ARK-five twenty completed and ongoing studies.

I hope it is helpful to have the descriptions and study numbers. Moving on to RKAT, Chris mentioned the status of the Phase one study in his highlights for the quarter, but I want to add a little more detail. The ongoing Phase one trial of RKAT is a multicenter single dose escalation first in human study to evaluate the safety, tolerability and pharmacokinetics of RKAT and the effect on circulating AAT levels. The study has been enrolling in dose cohorts of participants each with participants randomized at a ratio of two active to one placebo to receive a single intravenous injection of either ARCA AT or placebo. The study consists of two parts Part A in healthy volunteers, which dose escalated at a single center until a predetermined level of knockdown was achieved and Part B to be conducted in patients with PIZZ genotype AATD or alpha-1a trypsin disease.

Part B has begun at the highest dose level used in Part A and then continued dose escalation may proceed according to the protocol. The study evaluates participants for twenty eight days following dosing with additional follow-up if needed every two weeks until AAT levels return to baseline. The study is enrolling currently in Australia. We've received regulatory approval allowing us to add additional sites in The UK and New Zealand and we are currently awaiting regulatory approval in Germany and The Netherlands. Since alpha-one antitrypsin deficiency is a rare disease, we want to cast a wide net for patient recruitment.

With that, I'd like to turn the

Speaker 3

call over to Ken Busczkowski, Arrowhead's Chief Financial Officer. Ken? Thanks, Bruce, good afternoon, everyone. As we reported earlier today, our net loss for the three months ended June 3035 was $15,900,000 or $0.27 per share based on 59,500,000.0 weighted average shares outstanding. This compares with a net loss of $11,600,000 or $0.22 per share based on 51,900,000.0 weighted average shares outstanding for the three months ended June 3034.

Total operating expenses for the three months ended June 3035 were $16,100,000 compared to 12,700,000 for the three months ended June 3034. The increase in operating expenses compared to the year ago period of $3,400,000 were primarily due to higher research and development expenses of $1,100,000 and higher salaries and payroll related expenses, which also increased $1,100,000 Non cash operating expenses for stock compensation and depreciation and amortization increased $900,000 as compared to the prior year quarter. Higher R and D costs in the quarter were driven by clinical trial expenses primarily related to ARK-five twenty. The increase in salary and payroll related expenses were driven by higher headcount. Total full time headcount at June 3035 was 97 as compared to headcount of 75 at June 3034.

Net cash used in operating activities during the third fiscal quarter was $13,100,000 compared with $9,800,000 in the prior year period. Cash used in operating activities during the quarter were primarily composed of research and development costs, mostly program costs for ARK-five 20 and program costs for ARK AAT as well as R and D salary and wages and related discovery research costs as well as general and administrative costs including salary costs. The primary drivers of the change in cash used in operating activities during the current period as compared to fiscal twenty fourteen is consistent with the drivers for the change in operating expenses aside from non cash charges. Turning to our balance sheet. At June 3035, including our investments in fixed income securities, our cash and investments balance was $111,600,000 a decrease of $16,800,000 from March 3135.

Our cash and investments at September 3034 was $177,300,000 During the quarter, the company made the final payment of $3,000,000 to Novartis related to the asset acquisition that closed in March of this year. Excluding this $3,000,000 payment, our net change in cash and investments during the quarter was $13,800,000 Our common shares outstanding at June 3035 were $59,500,000 which increased from $54,700,000 at September 3034, primarily due to the issuance of 3,300,000.0 shares for the Novartis Also at June 3035, there were 15,652 shares of preferred stock outstanding.

Speaker 2

These preferred shares are convertible into 2,700,000.0 shares of common stock. Common shares outstanding including the conversion of our preferred shares would be 62,200,000.0. With that brief overview, I will now turn the call back to Chris. Thanks, Ken. With the Analyst Day presentation, new multiple dose studies of five twenty, initial healthy volunteer and patient data of ARK AAT, progress of ARK F12 toward the clinic and data from our growing pipeline all on the horizon, it is shaping up to be an exciting second half of the year for us at Arrowhead.

We see all these as substantial near and long term value drivers for our shareholders. I would now like to turn the call open to questions. Operator?

Speaker 1

Operator?

Speaker 2

Operator, are you still on?

Speaker 0

Our first question comes from the line of Michael Yee from RBC Capital Markets. Please proceed with your question.

Speaker 4

Hey, guys. Thanks. Good afternoon. A couple of questions on the Germany and Hong Kong studies. Your dosing there you're going to start dosing.

Can you just describe I guess what the trigger points are to disclose the data? How are you thinking about disclosing data over what timing? Maybe walk through a little of that so we can understand when we can expect to hear more on that? Second question is that on the Monarch study, which you disclosed, you said there would be in combinations. Should we assume that these are combinations with interferon and you're going to start at the low one to two milligrams?

Is the base assumption? And then last and final question is on AAT. You previously described you could get significant knockdown like eighty five percent to ninety percent. Just trying to understand when we could start to see some of that data now that you've started the Part B heart attack? Thanks.

Speaker 1

Michael, this is Bruce Given. I guess there are three questions here. Let me take the middle one first, which was the question about Monarch, Heparc two thousand and eight. Certainly interferon combinations are an important and obvious place to start, especially since the other agents that beyond the NUCs of course, the other agents that we'd like to think about in combination are not yet available. They haven't gotten far enough in development participate in a study like MONARCH yet.

So at this point, initial cohorts in MONARCH will be interferon based. And I think at this point until we have information from a multiple dose setting that we need to go higher than one or two mgs per kg, I think we will be starting probably at the two mgs per kg dose in Monarch. But we wouldn't hesitate to increase the dose if we thought that that would give us more knockdown. The value of Monarch, one the important values of Monarch is that it's a trial that allows us to be quite iterative and quite adaptive in response and intent. So that's certainly possible.

But at this point, we don't know under multiple dose conditions whether there would be any value from going higher. I'll take the ADT question next and you asked the question of when would we be seeing a knockdown in that range of 85% to 90%. That of course pre assumes that humans are going to behave like primates and mice and that's where the natural floor is. Keep in mind unlike some of the places where we work in these hepatic RNAi targets, AAT is produced outside the liver, not only in the liver. So for products that are truly liver targeted, we don't know what the floor is going to be.

But if the floor in humans is similar to the floor in nonhuman primates and if the floor in the disease is similar to the floor normal AAT producing species. Then I would say that we could expect to see that kind of knockdown and we would probably be seeing that sometime around the end of the year into early next year potentially depending on what the doses are that it's going to take. It could be earlier depending on what the doses are. But the doses are similar to what we see in primates. That kind of timeframe seems to make sense for when we would expect to see that happening.

And then your third question was around 2002 and 02/2003. We talked about this in the past. Those trials are designed to provide four doses of drug, but they're also the thought process has also been to have an extension off the back of those which is the 2007 study, which we're still sort of finalizing our design. Winds up also maintaining the same blinded doses that the patients received in 2002 and 2003 that means we won't get the results until there's been a full year of treatment for all of these patients, which means that we're probably talking about results I would gather perhaps in 2017 would be my expectation. But we'll have other data I think before that for instance coming out of the Monarch study, which is an open label study for instance.

So it's not as though there's going to be a very long gap before we start producing data out of the program. But those particular studies will take a while. And of course, we'll be getting data out in 2004 before that as well.

Speaker 4

Okay. Thank you.

Speaker 0

Our next question comes from the line of Ted Tenthoff from Piper Jaffray. Please proceed with your question.

Speaker 5

Great. Thank you very much for the thorough update. Just two fact checking questions. The 2002 and the 2003 studies, the one in Germany and HK and ultimately South Korea, are they for weekly doses did you say?

Speaker 1

No. We said four doses given every four weeks, so basically monthly doses Okay,

Speaker 5

great. Sorry about that. Thanks. Then four study, is that The U. S.

Study that has just been kind of cleared to begin at one mg per kg?

Speaker 1

That's right. That's the study that we worked out the FDA. Yes.

Speaker 5

And how many doses are there in that study? Is that disclosed? I know it's a repeat dosing, but I'm not sure how

Speaker 1

Yes, that will be three monthly doses.

Speaker 5

Three monthly. Okay. Awesome. Thank you. Very much looking forward to the Analyst Day in September and learning more about these new discoveries that you guys are making in the field.

Speaker 1

Thanks, Ted.

Speaker 0

And our next question comes from the line of Eun Yang from Jefferies. Please proceed.

Speaker 6

Hi. This is Carmen in for Eun. Thanks for taking the questions and congratulations on the quarter. So first in the Phase IIa trial of ARK-five twenty, I know we're expecting to see some data in September, but would you be able to give us any kind of directional color on whether you're seeing a dose response in HB surface antigen reduction in the three and four milligram doses as compared to one and two milligrams?

Speaker 1

It's actually a hard question to answer because we're still blinded. Those cohorts and cohort five are double blinded cohorts. They're all blinded. They'll be unblinded before the Analyst Day on September 24 and then we'll be able to answer that question. The last two cohorts, Cohort six label cohorts.

So we'll be able to provide current data for those on the Analyst Day. But the three and four mg per kg cohorts and the E negatives are still blinded.

Speaker 6

Okay. Thanks. And just to clarify, sorry if I missed it, where will the Monarch trial be run?

Speaker 1

Are we disclosing that? We've not disclosed that.

Speaker 6

Okay. No problem. And for the Phase 2b multiple dose trials that's 02/2004, 2002 and 02/2002, has dosing begun in those?

Speaker 1

So we are actively screening in 02/2004. All of the centers are up and running and screening. 2002 and 2003 are at this point the European centers as you might imagine are basically not enrolling in clinical trials because it's the summer vacation season. And even if the investigators are around then the research pharmacists aren't around or it's not feasible to start a study in August in Europe. In Hong Kong, we could get started, but we're focusing on completing our enrollment in 2,001 rather than turning those centers on to enroll for 02/2002, 02/2003.

So we would expect that they'll start enrolling probably in September.

Speaker 6

Okay. And on 2002 and 02/2003, you mentioned that those would be testing one milligram and two milligram per kilogram doses. Will 2004 also be testing a two milligram per kilogram dose?

Speaker 1

It's currently designed just to do the one mg per kg dose and then get back to the FDA.

Speaker 6

Okay. And then lastly for the Phase 2b combination trials, can you give us any additional details on the dose and for combinations with immune modulators that you plan to use inter interferon, anti PD-one or something else?

Speaker 1

Well, as I had said to Michael, interferon does figure into some of the early cohorts there so do classic NUCs. We've been giving a lot of consideration to other potential combinations. There have even been some discussions with other potential collaborators in that regard. But as I said, there actually are very few products out there that are in a position to be able to collaborate. But we sort of have our we have our thoughts about what might be the next best combination agents to think about putting cohorts in.

We've discussed these with our Clinical Advisory Board. They're pretty excited about some of the ideas as well. But at this point, early cohorts interferon and the NUCs are going to be the original starting point I think is fair to say.

Speaker 2

And keep in mind that the goal of Monarch here is to find a recipe that gets us to functional cures. Once we find that recipe, we'll then blow that out with larger studies of course. And we are taking an open architecture approach to finding that recipe. We are a bit agnostic as to what combinations we'll do as long as they appear to be safe and they make sense theoretically, we'll try those combinations.

Speaker 6

Okay. Got you. Thank you very much.

Speaker 2

You're welcome. Pardon

Speaker 0

me, this concludes our today's Q and A session. I'd like to turn the call back over to Mr. Anzalone for any closing remarks.

Speaker 2

Thanks very much. Thank you for joining us on the call today. And we look forward to talking to you again on September 24.

Speaker 0

Ladies and gentlemen, thank you for attending today's program. This does conclude today's call. You may now disconnect. Everyone have a great day.