Arrowhead Pharmaceuticals - Earnings Call - Q3 2016

Transcript

Speaker 0

Ladies and gentlemen, welcome to the Arrowhead Pharmaceuticals Fiscal twenty sixteen Third Quarter Financial Results Conference Call. Throughout today's recorded presentation, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. I will now hand the conference call over to Patrick O'Brien, General Counsel for Arrowhead. Please go ahead,

Speaker 1

Thanks, Tamara. Good afternoon, everyone. Thank you for joining us to discuss Arrowhead's results for its fiscal twenty sixteen third quarter ended June 3036. 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 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-five twenty one, ARK AAT, ARK F12, ARK LPA, ARCH HIF2, and our other programs as well as anticipated timing for study enrollment and completion and the potential for regulatory, commercial, and business development 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 like to turn the call over to Doctor.

Christopher Anzalone, President and CEO of the company. Chris?

Speaker 2

Thanks, Patrick. Good afternoon, everyone, and thank you for joining us today. Patrick is filling in for Vince, whose wife, Hillary, apparently is making a habit of giving birth on the days of our quarterly conference calls. So welcome to the world, Nicholas Santino Anzalone. I'd like to start with our announcement today that we raised $45,000,000 of equity capital.

We did this with a small and targeted syndicate of high quality biotech focused institutions. This financing was oversubscribed and priced at market. I think these are important considerations particularly in the current capital markets and we are proud to have been able to execute the transaction and appreciative of the trust these institutions have in Arrowhead. With any equity financing, there is a balance we hope to strike between accessing the capital we need to build value by moving our programs forward and limiting dilution in order to maximize shareholder return. We stopped at $45,000,000 balance.

We wanted to strengthen our balance sheet now and increase our runway to reach potential inflection points while we work on certain preclinical business development opportunities. Let's take a look at both sides of that equation and start with potential milestones we can reach with the current and new capital. An additional $45,000,000 of capital will get us into the third calendar quarter of twenty seventeen. Between now and then, we expect to reach a number of milestones, including but not limited to the following: single dose patient data with ARK-five twenty one multiple dose patient data with ARK-five twenty one, readouts on some of the Phase two ARK-five twenty studies, collaborations with additional therapeutic agents in Monarch, single dose healthy volunteer ARK AAT data, single dose patient ARC AAT data, complete enrollment of the first ARC AAT Phase II study and nomination of an additional clinical candidate. As you can see, we have sufficient runway to hit several potential catalysts, so we are comfortable with our capital resources.

But if the current offering was oversubscribed and priced at market without a discount, why stop at $45,000,000 Why not further strengthen our balance sheet with additional capital? The answer is that we wanted to limit dilution while we continue to pursue some possible preclinical discovery stage collaborations. Let's take a closer look at that concept. We have believed for some time that once we build out our discovery capabilities and gain clinical validation for our various technology platforms, we will enter a period marked by rapid pipeline expansion. We are in that period now.

Because of the versatility of our technologies, there are substantially more opportunities than we can support independently. This is a natural part of the growth process for a platform company. We anticipated that this time would come and over the last few quarters, we made a strategic shift to seek preclinical discovery stage development partnerships that could expand the reach of our technologies in areas that are outside of our core focus or beyond our current capabilities and financial resources. In order to attract the highest quality partners, we've also selectively grown our headcount across key departments and will move to a larger research and development facility before year end that will allow us to grow rapidly. With our robust and versatile drug discovery and development engine, we now see Arrowhead as a partner of choice for companies interested in expanding into RNAi therapeutics.

We have said on conference calls this year that we believe we have access to capital through a variety of sources. This continues to be true. And in fact, we are in active discussions around preclinical discovery stage collaborations. Of course, we cannot predict or provide guidance on the timing or magnitude of these types of agreements or guarantee that they will come to fruition, but they are a focus for us and represent an important part of our ongoing financing strategy. Now I'd like to turn to a brief review of some of the highlights of the last quarter before I turn the call over to Bruce Given, who will discuss our clinical programs.

We continue to execute on multiple fronts and moved our programs forward at best in class speed. For ARK-five twenty, our first candidate aimed at providing a functional cure for chronic HBV infection, we continue to enroll and dose patients in our various global Phase II studies. Collectively, these studies are designed to give us a comprehensive understanding about how ARC520 acts at various dose levels in different patient genotypes, in E antigen positive and negative disease in nuke experienced and naive patients and as monotherapy or in double or triple combination with other agents. Based on data from our single dose 2,001 study and supported by our non clinical chimpanzee study, ARK-five twenty appears to be maximally active in patients with higher relative levels of antigen expression from HBV CCC DNA versus HBV that has integrated into the host DNA. In E antigen positive NUC naive patients, we saw max S antigen knockdown of almost two logs or ninety nine percent with an extremely long duration of effect.

These and other data led us to believe that ARK520 is doing precisely what it was designed to do. It appears to be highly active against CCC DNA derived mRNA transcripts and thus can reduce the production of HBV proteins and the pre genomic RNA. Remember that this virus only makes six things and we hit all of them. For those patients with lower relative levels of cccDNA and higher relative levels of integrated DNA, we developed ARK521. During the quarter, we initiated a Phase onetwo study.

This is a single ascending dose study in healthy volunteers in parallel with a multiple ascending dose study in patients chronically infected with HBV. Bruce will talk a little more about that study, but it is designed to rapidly get to the following three readouts: one, single dose safety data in healthy volunteers two, single dose antiviral activity data in patients with chronic HBV and three, multiple dose safety and antiviral activity data in HBV patients. The disclosure of these readouts should happen progressively and we expect to start during the first quarter of twenty seventeen. We also made progress on our Phase one study of ARK AAT, our clinical candidate against an orphan liver disease associated with a genetic mutation that causes alpha-one antitrypsin deficiency or AATD. We completed dosing in an expanded Part A in healthy volunteers and continue to enroll Part B in patients with AATD.

We intend to report data from this study and initiate a Phase II study before the end of the year. During the quarter, we made presentations at three medical meetings on programs that each use a different version of our platform delivery technology. At EASL, we presented data on ARK-five 20 that uses an IV administered two molecule version of our DPC delivery system. At AACR, we presented data on ARK HIF2, which uses a one molecule DPC vehicle that enables delivery to extrahepatic tissues, in this case, tumor tissue. And lastly, at ATVB, we presented data on ARC LPA, which is the first program to use Arrowhead's new delivery vehicle designed for subcutaneous administration.

These presentations and description of the data are available on our website. They represent years of innovation and breakthrough by our R and D staff and we are extremely excited about the breadth of our technology and capabilities. We now feel like we can pursue virtually any disease where an RNAi based intervention that precisely targets and silences the expression of a specific gene is needed. In summary, the fiscal third quarter brought substantial progress in our clinical programs, our preclinical candidates, our underlying technology platforms, our R and D capabilities and also in business development discussions. These all help to put Arrowhead on a solid foundation for growth in the near term and the long term.

With that overview, I would now like to turn the call over to Doctor. Bruce Given, our COO and Head of R and D. Bruce?

Speaker 3

Thank you, Chris. Good afternoon, everyone. Being responsible for R and D, it is rewarding to see us continue to execute on our goals across our groups. As Chris mentioned, during the quarter, we initiated a Phase onetwo study of ARK-five twenty one, our second clinical candidate against chronic HBV. Before I give an update on our later stage programs, I want to talk for a moment about the innovative design for this first in man study that we think will get us to multiple dose data in patients very rapidly.

It is both a single ascending dose study in healthy volunteers and a multiple ascending dose study in chronic HBV patients. Up to 36 normal healthy volunteers will enroll sequentially into a total of six escalating dose levels randomized to receive a single dose of ARK-five twenty one or placebo. Once the day eight safety assessment is completed in the third dose cohort in healthy volunteers, the patient portion of the study begins in parallel with continued uptitration in healthy volunteers. Up to twenty four hepatitis B E antigen negative chronic HBV patients will enroll sequentially into a planned total of three dose levels, each to receive three monthly doses of open label ARK-five twenty one. The primary outcome measures are safety and tolerability, pharmacokinetics and change in viral antigens and DNA.

Based on our experience with ARK-five twenty from all of our studies, we are comfortable that we can dose escalate rapidly. Remember that ARK-five twenty one is built in the same underlying DPC delivery technology as ARK-five twenty. So we think we have a good idea about what to expect from the standpoint of tolerability, dosing and activity. I am pleased to report that we have already completed dosing in the first two volunteer cohorts with ARK-five twenty one and everything is going smoothly so far. We expect to begin cohort three in healthy volunteers this week.

Assuming no safety surprises, the first patient cohort will then begin. So as you can see, this study is moving at a good pace. As Chris mentioned, it should give us the opportunity to potentially give three valuable readouts. First would be single dose safety and tolerability in healthy volunteers, then single dose activity in chronic HBV patients, followed by multiple dose activity in HBV. These readouts could start in early twenty seventeen depending on the pace of accrual.

This is the timeline that we laid out when we announced the five twenty one program last year and is fulfilling to see the execution match our promises to our investors. Turning to ARC-five 20, we've had a lot of screening and enrollment activity during the quarter. In fact, we have now enrolled a total of around two fifty across all the ARK-five twenty studies to date. We estimate that around 200 of these have received ARK-five twenty with around 50 receiving placebo, and it continues overall to be well tolerated. We are frequently asked about timing for data release relative to the ARK-five twenty Phase IIb program.

We feel that we are in a position to give reasonable guidance today in this regard. The 02/2003 studies in NUC experienced patients are moving forward nicely and we continue to anticipate that enrollment will complete this year. That would give us results in the trials reporting out as expected around mid-twenty seventeen. Patients with a half a log or greater reduction in hepatitis B surface antigen have been rolling into the 2,007 long term extension. There are also additional patients from the single dose 2,001 study that have been rolling over to the 2,001 open label extension study.

Both the 2001 and 2007 extension studies allow for patients to be dosed with ARK-five twenty in combination with entecavir or tenofovir for up to a year. For Monarch, some of you may know that as the 2008 study, We continue to enroll patients across various cohorts. None of the cohorts are fully enrolled at this time, but we have over 25 patients that are currently in the screening process. We added additional investigators at sites last quarter and also added a cohort that looks at HBV and hepatitis delta virus coinfection. So as designed, the Monarch program continues to expand and give us the opportunity to generate a comprehensive picture of ARK-five twenty activity in combination with various agents and in different patient populations.

We would anticipate that cohorts from Monarch will become eligible for a presentation upon their completion and likewise for the 2001 and 2007 extension studies. This would indicate that data should start to appear during the second half of calendar year 2017. But because these are open label studies, as we have noted before, we have some flexibility and timing. We also continue to anticipate adding new cohorts to Monarch as other novel agents mature to the point where they can be brought into exploratory combinations. Assuming that these new cohorts would also involve a year of ARK-five twenty treatment, rich data reporting will continue during calendar 2018.

Moving on to ARK AAT, we completed enrollment in Part A of our Phase I study in healthy volunteers. We are still enrolling and dosing in Part B in patients with alpha-one antitrypsin deficiency. We continue to plan on sharing data from the program later in the year at an appropriate medical meeting, assuming abstract acceptance. Importantly, we have selected the two dose levels for our exploratory Phase two study and are well on our way to getting that study initiated. We submitted clinical trial applications or CTAs in four countries and have already received approval from regulatory authorities in Canada, Ireland, and Sweden.

The 2001 study will be an open label, multi dose Phase II study that will most critically determine the effect of RKA T on intrahepatic alpha-one antitrypsin levels as evidenced by changes in liver biopsy in patients with alpha-one antitrypsin deficiency. Patients who enroll will have a pretreatment biopsy, then receive seven monthly doses of RKA T, and then have a post treatment biopsy after the last dose. We will also be measuring circulating levels of AAT throughout the study. The liver disease associated with AATD is increasingly being recognized by patients and physicians as a serious problem. Patients are living longer with AATD because the pulmonary manifestations of the disease are being addressed with enzyme replacement, smoking cessation and overall improvement in drug treatments for pulmonary disease.

However, there remains no medical treatment for the liver disease. We are eager to see if Arc AAT can stop the progression of the liver disease and possibly even allow the liver to recover and heal existing damage. Our 2001 study should give us and the AAT community in general the first insights into this, and these study results will be eagerly awaited by us and those active in the field. Finally, let me say that our preclinical discovery programs continue to make progress, Especially, notably, our subcutaneous triggers are showing increasing potency, depth, and duration of knockdown, and our extrahepatic program is also making steady progress. For those of you that attend the American Heart Association annual meeting, we will have oral presentations on both our Factor XII and Lp programs.

With all the news flow from our clinical programs, it's easy to miss how quickly our platform has evolved. With that brief review of our R and D efforts, I'd like to turn the call over to Ken Biszkowski, Arrowhead's Chief Financial Officer. Ken?

Speaker 4

Thank you, Bruce, and good afternoon, everyone. As we reported today, our net loss for the three months ended June 3036 was $19,400,000 or $0.32 per share based on 60,000,000 weighted average shares outstanding. This compares with a net loss of $15,900,000 or $0.27 per share based on 59,500,000.0 weighted average shares outstanding for the three months ended June 3035. Total operating expenses for the three months ended June 3036 were $19,400,000 compared to $16,100,000 for the three months ended June 3035. The increase in operating expenses compared to the year ago period is primarily due to higher research and development costs, much of which is related to our new clinical candidate ARK-five twenty one as we prepare to enter clinical trials.

Net cash used in operating activities for the nine months ended June 3036 was $54,200,000 as compared to $53,700,000 during the nine months ended June 3035, a change of $500,000 Turning to our balance sheet. At June 3036, including $1,000,000 in investments, our cash and investments balance was $44,600,000 a decrease of $16,800,000 as compared to March 3136. As we announced this morning, we raised $45,000,000 in additional equity capital, further strengthening our balance sheet. Our common shares outstanding at June 3036 were $60,400,000 which increased from $60,000,000 at March 3136 due to the issuance of shares from the exercise of warrants. Also at June 3036 there were 15,652 shares of preferred stock outstanding.

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 $63,100,000 With that brief overview, I'll turn the call back to Chris.

Speaker 2

Thanks, Ken. We feel good about where we are as a company. Our clinical programs are advancing quickly and all three have the potential for groundbreaking readouts over the next twelve to eighteen months. Beyond our clinical programs, we have three extremely interesting publicly announced preclinical candidates in ARK LPA, ARKIF2 and ARKIF12 that represent large opportunities on their own, but also an expansion of our broad RNAi technology platforms. We now have systems capable of potent gene knockdown after IV administration and subcutaneous administration as well as prototypical extrahepatic system that has been shown to elicit high levels of target knockdown in tumor models.

We continue to carefully build out our discovery and development capabilities in such a way that we may create additional internal clinical programs and work with partners to develop programs they may take forward for commercialization. We believe that creating a mix of partnered and internal programs enables us to operate with balanced capital needs and with a greater diversification of risk. Ultimately, is a way to more fully monetize our platforms and maximize shareholder return. We are building a great company that develops innovative medicines for intractable diseases using industry leading technology. We think all of this positions us very well for growth in the short term as well as the long term.

I would now like to turn the call over to the operator. Operator?

Speaker 0

Thank you. And our first question comes from the line of Carmen Augustine with Jefferies. Your line is now open.

Speaker 5

Hi, thanks for taking the question. I was wondering if you could give us any more color on what kind of qualities you would be looking for in a preclinical partner and if discussions continue to be ongoing for a clinical collaboration in HBV?

Speaker 2

Thanks very much, Carmen. So for a preclinical discovery stage collaboration, we're really looking for a strong partner with a target that looks interesting to us. If the targets come from them, if we are talking about one of our targets, we are certainly interested in speaking with people about some of our earlier stage discovery activities. So we really view those on a case by case basis. Regarding clinical collaborations, that's a much higher bar for us, and I'll tell you why.

We think that we're building an awful lot of value with our clinical programs. And while we are certainly happy to talk to companies about partnering these either geographically or worldwide, we take that very seriously and we view that as potentially strategically dilutive. And so should those partnerships happen, we take a very close view at what the upside is for our shareholders. And so really right now we are more interested in discovery stage collaborations.

Speaker 5

Okay, great. Thanks. And then one more if I could. Could you talk a little bit about the rationale for adding HDV coinfection patients to the Monarch trial?

Speaker 3

Well, yes, sure. You know, HDV coinfection is a major public health issue in certain parts of the world. It would be an orphan drug in The U. S. I guess technically it's an orphan drug in Europe even, but it's a big problem, for instance, in Germany and some of the Eastern European countries.

And the thing about HDV is it requires the presence of an HBV coinfection because it uses the surface antigen to encapsulate the delta virus. So you have to have co infection for delta to exist. And it's important because it's much more aggressive than HBV. These patients rapidly develop cirrhosis and liver failure. So it's a very nasty, co infection.

So, you know, one of the interesting questions is can you do anything for Delta? NUCs actually are not helpful at all in Delta. The only current treatment is interferon, and it doesn't do a very good job. So there's a lot of interest in the hepatitis B world for, you know, can you do something about delta? So we thought it was worth putting in a cohort and seeing, you know, seeing if we could help.

You know, these cohorts in Monarch are small, 10 to 12 patients. So it's we have a fairly low activation energy from our perspective to ask questions like the Delta question because it's a fairly straightforward thing for us to do.

Speaker 5

Okay, great. Thanks.

Speaker 3

You're welcome.

Speaker 0

Thank you. And our next question comes from the line of Michael Yee with RBC Capital Markets. Your line is now open.

Speaker 6

Hey guys, thanks. Good afternoon and congratulations on our progress in the financing. On hepatitis B, with ARK-five twenty, can you just clarify a couple of things? One is, do you expect that there is any sort of near term announcements on actually 05/20 or 05/21? Or just to clarify, you're pretty much in execution blocking and tackling mode and just sort of enrolling and it's really all about 2017?

And then on AAT, I know that you suggested there are some data coming up at a medical conference.

Speaker 5

Can you

Speaker 6

clarify what we'd be looking for there? This is just safety and knockdown and healthies, correct? What are we looking for there? And following that, in the Phase II that you're starting up, what is exactly the primary endpoint on the biopsies or specific markers you're looking for? What's the exact primary endpoint?

Thanks so much.

Speaker 3

Okay. Why don't I start with AAT first, Michael. So and thank you, by the way. We're pretty proud of the offering as well. That was a it's a pretty been a pretty difficult market.

So that was really nice. So as far as AAT goes, what we will have you know, this year will be certainly, of course, safety and tolerability. We'll have a very good understanding of the knockdown, dose related knockdown, depth and duration by dose in volunteers and in patients, which, you know, we obviously already know a lot of that, which is why we were able to select our doses for the biopsy study with a pretty high degree of confidence. So that data, I think, will just be a really nice picture of exactly what our compound does from a profile perspective. It'll also probably answer a question that's out there in the community of just how much, AAT is made in the liver relative to what's made outside of the liver.

Because I think we'll have pretty good confidence since we have endosomal escape that, you know, whatever, you know, we produce is probably, you know, multi log knockdown in the liver. At least, you know, that would be our hypothesis going into the biopsy study. Now in the biopsy study, you know, so this is seven months of dosing. So given that, you know, the primary, things we are looking at, in the biopsies are the things that we know we should expect to change. So we will look at monomer, you know, content.

So basically, you know, really how much AAT is being produced, you know, you know, from expression of the AAT gene, by looking at the monomer content, you know, and that we would expect to see really, you know, suppressed to an extremely high degree. And that's kind of the first and most important thing. We want to know we shut down the gene, basically completely. Then we'll look at polymer content. And that's going to be really interesting, you know, because we no one knows if you shut down monomer, how long it takes for the liver to clear polymer.

And so understanding if we shut down monomer and seeing how much polymer change we get over seven months is going to help us, I think, get a pretty good idea at, for instance, you know, what's the feasibility of getting rid of globules? And if you're going to get rid of globules, you know, what kind of time might that take? So this is going be really important data for the field. And then, you know, there are other things that, you know, that you see in AAT livers, inflammation, fibrosis, etcetera. Seven months feels a little short to show changes in some of those things, but, we'll certainly look for them.

So we have a large number of things we want to look at, you know, Michael, But the most sensitive marker we think is going to be monomer content followed by polymer content. I hope that's helpful.

Speaker 7

Okay. Thanks. Sure.

Speaker 2

And Michael, also regarding your questions on data readouts for 05/21 and 05/21. First, a former lineman, I can't overestimate the importance of blocking and tackling. So I think that the rest of 2016 is a lot of blocking and tackling. We are enrolling I think reasonably quickly in both those. I think five twenty one is designed to get to readouts quite quickly.

We expect as we mentioned to start to read out five twenty one single and multiple dose in the beginning of twenty seventeen. For five twenty, it's harder as we've said, as we've talked about in the past, it's harder to know when we'll have data there. We talked about some time points on this call where we expect some of these studies to be over. And so definitely we expect data in 2017. And prior to that, we just have sort of have to wait and see.

As you know, we have some open label studies and so possibility of data there, that's just hard to predict at this point.

Speaker 7

Thank you.

Speaker 0

And our next question comes from the line of Elmer Piras with Cantor Fitzgerald. Your line is now open.

Speaker 7

Yes, good afternoon. Hello Chris and Bruce. Just a couple of details on the AATD trial. I think previously you disclosed that in Part A and B you have 50 individuals, both healthy and diseased patients. In Part B, how many patients have you enrolled?

Speaker 3

Yes. So hello, Elamir. It's good to hear your voice. And let me go ahead and, you know, give you a little bit of detail there. So we will biopsy all the patients at baseline.

You know, what we are learning, you know, from the studies that are being done in The U. S. There's cross sectional biopsying going on in AAT patients, a small percentage, maybe about ten percent or so, might not have any globules. And, you know, if we're going to biopsy patients, we're going to treat everybody because for sure they have monomer, even if they don't have globules and they probably have polymer as well. So the way we wrote the protocol is that we will have, you know, at least four patients in each of those two cohorts that have globules at baseline.

So that means at a minimum we'll have eight patients, you know, four at the lower dose, four at the higher dose. But if we wind up picking up a patient or two that don't have globules, you know, those would go on top. So you might wind up with nine or 10 patients in that setting.

Speaker 7

Okay. Somewhat different question. What percent of eligible patients continue on to expansion studies with five twenty?

Speaker 3

It's a good question, but that's I learned many years ago never to give any sort of enrollment blow by blow details. I'm afraid you're going to have to wait for that data for when we report, 02/2007.

Speaker 7

What I meant is in aggregate, the multiple extensions, but it's just roughly how many what percent elects to continue?

Speaker 3

Yes, I just don't feel like I should divulge that data at this point, Elmer. I understood your question. I'm just demurring from giving you an answer.

Speaker 7

Okay. Thank you very much for taking my questions.

Speaker 3

Sure. Thank you.

Speaker 0

Thank you. And I'm showing no further questions at this time. I would like to turn the conference back over to management for any final remarks.

Speaker 2

Okay. Thanks everyone for listening to the call today and we look forward to talking to you soon.

Speaker 0

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