Arrowhead Pharmaceuticals Inc (ARWR) 2011 Q3 法說會逐字稿

Good afternoon, and welcome to the Arrowhead Research Corporation third quarter 2011 earnings conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Brandi Floberg. Please go ahead.

Thank you, Amy. Good afternoon, everyone, and thank you for joining us today to discuss Arrowhead's results for its fiscal 2011 third quarter ended June 30th, 2011. With us today from management are President and CEO Dr. Christopher Anzalone and Chief Financial Officer Ken Myszkowski.

Management will provide a brief overview of the quarter and will then open the call up to your questions. Also on the call for participation in the Q&A session is Dr. Thomas Schleup from Calando.

Before we being, 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.

Without limiting the generality of the foregoing, words such as may, will, expect, believe, anticipate, intend, could, estimate, or continue or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of Arrowhead's future financial performance, trends in its business, or other characterizations or future events or circumstances are forward-looking statements. Forward-looking statements represent management's current expectations and are inherently uncertain.

You should also refer to the discussions under risk factors in Arrowhead's Annual Report on Form 10-K and the Company's quarterly reports on Form 10-Q for additional matters to be considered in this regard. Thus, actual results may differ materially. Arrowhead undertakes no duty to update any of the forward-looking statements discussed on the -- on today's call.

With that said, I'd like to turn the call over to Dr. Christopher Anzalone, President and CEO of the Company. Chris?

Thanks, Brandi. Good afternoon, everyone, and thank you for joining us on our call today. Arrowhead achieved a key goal earlier this year when we completed our transition from a diversified nanotechnology company to a focused nanomedicine company. It is through this focus that we believe we can maximize the operational and strategic efficiencies while advancing our businesses.

Each of our four businesses, Calando Pharmaceuticals, Ablaris Therapeutics, Nanotope, and Leonardo Biosystems is based on platform technologies. So we have multiple opportunities and avenues to create value.

Because each of our divisions has the ability to develop multiple drug candidates, we believe that our investors have broader upside potential while also limiting their downside risk compared to biotech companies focused on a single candidate.

This model works most effectively if our programs are well integrated. And we are committed to that transition now. It is also critical for us to drive each program to and through the clinic in order to establish proof of product and platform. Therefore, we have been highly focused on our clinical program at Calando and pushing Ablaris into the clinic as rapidly as possible.

Today, we announced a significant milestone for our Company. Enrollment has been completed for Calando's Phase I trial. Preliminary trial results are consistent with our earlier findings, which gives us confidence in our future development and partnering plans. Data from the Phase I suggests that our system is well tolerated in humans, has the ability to shuttle siRNA into target cells to silence disease-related genes, and can potentially be used to create a virtually limitless number of customized RNAi-based therapies.

As I have said in the past, we firmly believe that our RONDEL delivery system is capable of solving a primary challenge of RNA interference today, safe and effective systemic siRNA delivery. As such, it has the ability to unlock the RNAi field and lead to the commercialization of a new and powerful class of therapeutics that attacks disease at its root cause.

While we hit our primary endpoints and believe our data are strong, we will expand into a Phase Ib because we may be able to push the system even further by simply changing the dosing schedule. Some people may be disappointed that we are not moving directly into a Phase II at this time, but we believe that spending a small amount of time on a Phase Ib now will increase the value of our program and increase the power and impact of a Phase II. Therefore, allow me to elaborate a bit on what we found thus far in our rationale for a Phase Ib.

As you know, the primary purpose of a Phase I oncology trial is to treat a small number of patients and determine if a drug candidate is safe and then to determine the upper limit of that safety. In other words, we are looking for how high a dose may be used while still maintaining an acceptable safety profile.

Because of the dynamics of cancer and the uncertain nature of tumor load, using as high a dose of a drug candidate as possible is often preferable. Our Phase I demonstrated that RONDEL is a safe and effective delivery system capable of silencing target genes. This is a huge step for the RNAi field and is made even larger by the fact that RONDEL has been shown to work well in cells outside the liver, something that we believe has not been shown by anyone else in humans.

In assessing responses from the Phase I, we found something very interesting. The adverse effects we saw as we increased dose did not appear to be related to the RONDEL delivery system itself but rather to the natural unmodified siRNA inside.

From our experience with other cyclodextrin-based delivery and our data with RONDEL in non-human primates, we would expect dose-limiting toxicities to be primarily renal in nature. Therefore, we have looked very hard for any signs of renal toxicities as we escalated doses and have not seen anything.

This is consistent with our non-human primary toxicology studies, which suggest that we may be able to increase RONDEL approximately 10-fold above the highest dose we have used in man thus far before we see dose-limiting renal toxicity.

The AEs we have -- the AEs we began to see in the Phase I were largely consistent with what others have seen stemming from immune responses to natural unmodified siRNAs and coincide with expected increases in certain cytokine levels.

These reactions also appear to be transient, such that if a patient stayed on CALAA-01, the effects of the cytokine response -- the effects and the cytokine responses often subsided. Taken together, this is potentially very powerful news for RONDEL. We may be able to increase the maximum tolerated dose even further by changing the dosing schedule.

We have reason to believe that if we pre-treat patients with a lower dose of CALAA-01 per cycle, we may be able to desensitize them to the natural siRNAs and enable us to increase the dose for future cycles.

For future clinical candidates, we believe we can eliminate the siRNA effects entirely through established chemical modifications. What is important to us is that RONDEL has been shown to be safe and effective and that we still may have room to increase dose. We do not yet know how high we may increase dose and how wide a therapeutic window we can create.

The Phase Ib we are embarking on will further help to answer that question, potentially enable us to take advantage of an expanded therapeutic window for CALAA-01, increase the power of a CALAA-01 Phase II trial, and provide us with additional information about RONDEL that will inform our future clinical programs. All of this will help to mitigate our risk and that of the potential partners.

Today, we opened enrollment for the Phase Ib at the START Clinic in San Antonio, Texas, and plan to commence enrollment at second and third sites in a few weeks. The trial will include up to 12 adult patients and is expected to be completed in early 2012. We are continuing to explore third-party collaborations and believe that data from the Phase Ib will be helpful but not necessary to initiating partnerships.

As we've discussed in the past, the partnership landscape has shifted over the past 12 to 18 months in RNAi. This has moved again with Merck's recent announcement that it is closing one of its RNAi facilities.

Let me elaborate a bit on how we view this changing market and how it may affect our efforts. We are in this market speaking with potential collaborators, partners, and customers and are not seeing decreasing interest in RNAi. To the contrary, we continue to see confidence that RNAi could be a powerful therapeutic class. Many companies see RNAi much the same way that we do, as a great step into personalized medicine.

The challenge has been complexity, and the key complexity has been delivery. We are seeing companies choose to outsource this challenge, and we consider Arrohead and Calando as beneficiaries of this trend.

If the large pharmaceutical companies believe that they cannot afford to turn their backs on the promise of RNAi and are waiting for a company to develop a clinically validated system for delivering siRNA to the liver and beyond, we stand to win.

Our Phase I data support this. Our Phase Ib may enable us to further increase the CALAA-01 therapeutic window. And future clinical candidates developed in house and with partners will utilize chemically modified siRNAs to expand the therapeutic window even further.

A vital component to advancing the Calando platform is broadening of the Company's Scientific Advisory Board of RNAi experts. Last month, we announced the addition of oncology expert Timothy J. Triche, MD, Ph.D. to Calando SAB.

We are excited to benefit from Dr. Triche's extensive clinical background in the genetic aspects of cancer biology and believe his industry-renowed research in Ewing's sarcoma provides a foundation for a second potentially attractive target.

Bringing Dr. Triche into Calando speaks to our confidence in the RONDEL system as a long-term broad-based solution to siRNA delivery and highlights our belief that RNAi may be a very powerful therapeutic option for treating Ewing's sarcoma, a condition that results from a single fusion protein.

Turning to our development program for Ablaris, we remain on track to bring our first anti-obesity compound into the clinic by the end of this year. Following active discussions with the FDA, additional pharmacokinetic information and toxicology data from a non-primate species were requested. MD Anderson commenced to work on both studies, and we expect them to be completed and submitted to the FDA shortly. Results have been consistent with previous findings, both in terms of efficacy and safety profile.

We are very excited about the potential of this drug candidate and its addressable market and believe we have a very powerful drug candidate that not only may help to combat obesity but also may help to reverse symptoms associated with type II diabetes. Lastly, I want to remind you that the Phase I trial for Ablaris will be conducted a no additional direct cost to Arrowhead.

In line with our strategy, Ablaris's platform technology may be used to generate multiple therapeutic candidates. While we ready our first compound that we expect to enter the clinic later this year, we are simultaneously developing next-generation candidates to maintain an active pipeline.

Turning to our minority interests, our strategy with Nanotope is on track. We still aim to add a specialized partner to this program, one that has the ability and resources to not only develop compounds but also bring them to market. With Leonardo Biosystems, we are making steady progress with scaling up manufacturing.

Our steps with each of our companies have been steady -- have represented a steady progression. Each small movement is essential to our success. And we have our heads down focused on moving this needle forward.

With that overview, I'd like to turn the call over to our CFO Ken Myszkowski to review our financials for the period. Ken?

Thanks, Chris, and good afternoon, everyone. As we reported earlier today, our net loss attributable to Arrowhead for fiscal 2011 third quarter was $1.8 million or $0.03 per share based on 71.8 million weighted average shares outstanding.

This compares with a net loss of $371,000 or $0.01 per share based upon 64.6 million weighted average shares outstanding for the quarter ended June 30, 2010. No revenue was recorded for the three months ended June 30, 2011 or 2010.

Total operating expenses for the quarter ended June 30, 2011, were $1.8 million compared with $1.4 million for the quarter ended June 30, 2010. The increase in operating expenses was primarily due to increased costs related with foreign patent filings and attorney fees associated with Calando's intellectual property portfolio and to hire outside lab services and contract services to support enrollment in the Calando clinical trial.

On a consolidated basis, net cash used and operating activities for the first nine months of fiscal 2011 totaled $6 million compared with $3.2 million in the prior-year period. The increase is primarily related to a one-time $2 million payment to the University of Texas MD Anderson in December 2010 related to the formation of Ablaris.

Turning to our balance sheet, as of June 30th, 2011, we had cash and cash equivalents of $4.3 million compared with $6.8 million at September 30th, 2010. A decrease in our cash balance is primarily the result of operational spending at Arrowhead, Calando, and Ablaris.

With that brief overview, I will now turn the call back to Chris for concluding remarks.

Thank you, Ken. In the coming months, we'll be focused on obtaining additional data for the Calando trial as well as advancing the Ablaris and Nanotope platforms. In conjunction with these initiatives, we'll keep an eye to our cost-effective development and are ever mindful of deploying capital efficiently across our businesses while further our leadership in nanomedicine.

We believe that nanomedicine will transform the pharmaceutical and biotech industries. And as I have said before, we are committed to ensuring that Arrowhead remains at the forefront of that movement.

Before we open the call to your questions, we announced today at our annual meeting the shareholders voted in favor to amend the Company's certificate of incorporation to grant the Board of Directors the authority to affect a reverse split of our common stock. While we have no immediate plans to implement a reverse stock split, we believe this authorization is an important proactive step that will enable Arrowhead to move quickly to maintain its NASDAQ listing if necessary. Importantly, our extension runs until December 5, 2011.

As a reminder, the catalysts we are presently focused on include the following. First, we just announced our Phase I enrollment completion with Calando. Our next step is to progress the Phase Ib trial.

Secondly, with Ablaris, potential publication of data in a major journal relating to our primate studies and initiation of a Phase I trial are all upcoming, and we are extremely excited about this program; and third, continuing developments in establishing partnerships with our early stage programs Nanotope and Leonardo.

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

Thank you. (Operator Instructions). Our first question comes from [Todd Aldridge], private investor.

Hey, Chris, just had one question surrounding the Phase Ib versus the enrollment being done on the Phase I itself. I do understand the need to find an MTD, right, in order to go forward into a Phase II. But, is the increased delivery data that you were hoping to get by increasing the number of patients from some time back, has that been met with the enrollment being completed in the Phase I? Or, will that Ib also support that along with trying to find some maximum tolerated dose?

So, I think that we have sufficient data to start a Phase II if we wanted to. The reason for doing the Phase Ib is to better flesh out the safety profile of the RONDEL. What we found in this Phase I, I think, is very encouraging.

The minor effects that we started to see as we increased dose seemed to be related to the unmodified siRNA inside RONDEL. The reason that's important to us is that we derive, I think, most of our value from RONDEL itself, not necessarily from CALAA-01. I think CALAA-01 is a good drug, but again, I think the vast majority of our value is wrapped up in RONDEL because we can load it with other sequences and make N number of drugs out of that.

So, we are heartened to determine if we are correct that the toxicity that we've seen are related to something that is manageable and that is mitigatable, if you will. We still are curious to know how high we can dose with RONDEL.

Now, if we wanted to move into a Phase II, I think we have enough data to do that, given the current dosing regimen. But, this will just give us a bit more data so we can better design that Phase II. And also, we'll have more data so we can better design our follow-on Phase I's because, remember, we intend to use chemically modified siRNAs for future clinical candidates. And so, we will have a lot more information, we think, after the Phase Ib about the safety profile of RONDEL itself.

Right. It kind of felt like to me that the hurdle on proving delivery, which a much lower than sort of efficacy on therapeutic for obvious reasons, so it kind of seemed like additional patient data was needed in order to prove out sort of RONDEL was delivering, as we had seen in the NATURE study.

Would it be fair to assume that, with the added patients and completing the Phase I that that additional delivery data, given where the hurdle was set, basically has been done for the likes of a potential partnership at this stage? Or, will the Ib be needed for that?

I don't think that the Ib is needed for a partnership. I think it's helpful, but I don't think it's needed. I think that we are comfortable that, with the data that we have seen in the Phase I, we're comfortable that RONDEL works. We're comfortable not only is it well tolerated, but we're comfortable that it does shuttle siRNA into target cells. And it does lead to mRNA knockdown. And it does lead to protein knockdown.

We are starting to get a better handle on what that dose response curve looks like, if you will, so as we increase dose, the resulting knockdown in gene expression. And so, it will be interesting for us to see and, again, informing of our future candidates to see -- to increase dose even more to see what that curve looks like.

But, I think our take-home message is this. The Phase I was a success. We determined it was safe and effective. The Phase Ib will just be additional information that is helpful for our future programs and helpful for partnering but not critical for either.

Last fall, if I may, I did hear your sort of year-end goals on Ablaris and pushing forward with the Calando Phase Ib. Would partnering Calando be a goal still by the end of this year, 2011?

Yes, that is still a goal.

Okay. Great. Thank you very much, and, again, I wish you guys the best of luck. Thanks, Chris.

Thank you.

(Operator Instructions). At this time, we show no further questions. I would like to turn the conference back over to Christopher Anzalone for any closing remarks.

Thank you, everyone, for joining the call. And we look forward to speaking with you again next quarter.

The conference is now concluded. If you wish to access the telephone replay for this event, you may do so by dialing 1-877-344-7529 or 412-317-0088, and please enter conference ID 1000293. This replay will be available beginning one hour from now until August 15th. Thank you. You may now disconnect.