Arrowhead Pharmaceuticals Inc (ARWR) 2014 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Arrowhead Research fiscal 2014 first-quarter financial results conference call. Throughout today's recorded presentation, all participants will be in listen-only mode. (Operator Instructions).

I would now like to hand the conference over to Vincent Anzalone, Director of Finance and Investor Relations for Arrowhead. Please go ahead, Vincent.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today to discuss Arrowhead's results for its fiscal 2014 first quarter ended December 31, 2013.

With us today from management are President and CEO, Dr. Christopher Anzalone; Chief Operating Officer and Head of R&D, Dr. Bruce Given, and Chief Financial Officer, Ken Myszkowski. Management will give a brief overview of the quarter and we will then open up the call to your questions.

Before we begin I would like to remind you that comments made during today's call 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. They represent management's current expectations and are inherently uncertain, thus actual 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-K and the Company's quarterly reports on Form 10-Q for additional matters to be considered in this regard.

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

Thanks, Vince. Good afternoon, everyone, and thank you for joining us today.

During our last conference call in December, we discussed key 2013 milestones and how they have derisked our programs and helped shape our current value proposition. That was less than seven weeks ago so today we will be more forward looking and focus on our plans for this calendar year.

2013 was indeed a great year for us but we see even more opportunities for value creation in 2014. We are entering a period of growth marked not only by progress of ARC-520, our candidate against chronic hepatitis B infection, but also by expansion of our clinical pipeline. This is the natural progression for Arrowhead as a maturing company and sets forth a fundamentally different risk profile than we had just a year ago.

Let's start with capital. Today we filed a shelf registration statement for up to $200 million in Arrowhead equity securities. Our existing shelf expires this year and we felt that prudent financial management to maintain an effective shelf registration statement. It also reflects our confidence in ARC-520 and a broader GPC platform. We have a tremendous amount of value yet to unlock and we believe the best way to maximize that value is to drive clinical development ourselves and not be dependent upon early partners. For instance, we are prepared to push ARC-520 all of the way through registration.

So does that mean we are raising $200 million right now? No. We have a very strong balance sheet that gives us runway into 2016 and enables us to fully fund ARC-520 through Phase IIb while pushing two additional candidates through clinical proof of concept. The new shelf gives us added flexibility to further strengthen our balance sheet at some point in the future and continue independent development beyond that.

The ARC-520 clinical program has provided us increased confidence to drive development internally. In October, we completed planned enrollment in a Phase I study of ARC-520 in 36 healthy volunteers. The study indicated that ARC-520 was generally safe and well tolerated at all six dose levels studied. All subjects received their full assigned dose and there were no discontinuations for adverse events or otherwise. No serious or severe adverse events were reported and laboratory results have not indicated any organ toxicity in any subject. We later presented unblinded Phase I data at the HepDART 2013 conference demonstrating that adverse event frequency and severity were the same between placebo and ARC-520.

In November we applied for regulatory approval in Hong Kong to conduct a single dose Phase IIa study in patients with chronic hepatitis B. The two site MPIs are a well-known international KOLs that have conducted many HPV trials. Ethics committees from both sites have approved our protocol and all necessary preparations are complete. We are waiting for final approval from the Hong Kong Department of Health to begin the study. Communications have been positive and we believe that we will receive approval and begin treating patients this quarter.

We are currently planning two dose groups of eight patients each and we expect it to enroll quickly. We believe both cohorts will be at effective dose levels and our primary endpoints are safety and tolerability as well as depth and duration of s-antigen knockdown. We believe the dosing portion will be complete in the second quarter and we will follow patients until s-antigen levels return to baseline.

While we cannot predict how long the duration of effect will be, we believe the topline data should be available sometime during the summer. Our plan is to provide these data via press release and then present a full data set at a scientific meeting.

We have a high degree of confidence that a Phase IIa will be successful. The Phase I suggested that we have a safe and well-tolerated drug at all doses studied. We saw no dose limiting toxicities so we do not expect any safety concerns in the Phase IIa.

We have generated a substantial amount of data in multiple animal models indicating highly potent knockdown. For instance, we published data in the Journal of Molecular Therapy describing ARC-520 administration in rodent HPV models that led to three to four logs or greater than 99.9% knockdown of HPV gene products.

We have generated data in nonhuman primates using other sRNA sequences demonstrating similar results. Most recently we reported deep and durable knockdown in a chimpanzee with chronic HPV. Should the IIa work out as we hope, it will represent a great leap forward in HPV research and potential treatment. We believe it will be the first time anyone will have demonstrated consistent s-antigen reduction which is thought to be a critical step in reaching a functional cure.

Based on the Phase IIa data, we plan to move into a multidose Phase IIb in the second half of this year. Preparations for this much longer study are underway and they include completion of our second external GMP manufacturing run, chronic GLP toxicology studies in multiple species, site and investigator recruitment, protocol development and applications for regulatory approval. The Phase IIb will be a multinational study and will likely include sites in the US, Europe and Asia.

We will be designing the trial to provide a readout on ARC-520's ability to achieve functional cures among other outcome measures.

As you can see, 2014 is an important year for ARC-520 and we expect substantial value to be created around this program but 2014 is also about leveraging ARC-520 to derisk the DPC delivery platform and broadening out our pipeline. So think of ARC-520 as a candidate that drives value directly and as a proxy for other liver-based candidates.

Our friends at Alnylam did the same thing with their TTR program over the past year and a half. We have demonstrated that DPCs are safe and well tolerated in humans and we hope that by the summer we will have demonstrated that they are capable of inducing efficient, deep and durable gene product knockdown in humans. This type of clinical validation will enable shareholders and potential shareholders to ascribe value to new candidates relatively early in development.

RNAi is a reliable mechanism and many accept the idea that if you can get a potent siRNA sequence to the right tissue type and the right intercellular space, then you can reasonably expect target gene product knockdown. Once we show that DPCs can do this safely and efficiently in humans, we will have a machine capable of pushing new candidates into the clinic quickly.

These candidates may have a higher probability of success and lower risk profile relative to early clinical candidates using other therapeutic modalities. This is the point when our upside potential expands substantially and we begin to maximize the value we may extract from our broad platforms.

Towards those ends, we expect to have an analyst and investor day at the end of the second quarter to discuss pipeline capabilities and the next candidates. The target and disease area for this next candidate have not been disclosed publicly but we have said that it is an orphan liver indication. Our current plan is to hold an analyst and investor day to announce the candidate, provide information about the disease area, present preclinical data and give more guidance about the timing for the clinical program. This should be very similar to the event we held last year on ARC-520 and we hope to include key opinion leaders in the disease area. We expect to file an IND for the new candidate in the fourth quarter of this year.

Underneath ARC-520 and the next candidates we have programs against other targets. We also have large efforts to develop DPC formulations for subcutaneous administration as well as programs in extrahepatic delivery. We believe these are significant mid- and long-term value drivers and we hope to provide additional information around them later in 2014.

With that update, I would now like to turn the call over to our CFO, Ken Myszkowski, to review our financials for the period. Ken?

Thank you, Chris, and good afternoon everyone. As we reported today, our net loss attributable to Arrowhead for the three months ended December 31, 2013 was $10.6 million or $0.28 per share based on 37.7 million weighted average shares outstanding. This compares with a net loss attributable to Arrowhead of $4.6 million or $0.33 per share based on 14.1 million weighted average shares outstanding for the three months ended December 31, 2012.

Total operating expenses for the three months ended December 31, 2013 were $7.1 million compared with $5 million for the three months ended December 31, 2012. Research and development related expenses were $4.5 million during the quarter and general and administrative expenses were $1.7 million. The increase in operating expenses compared to the year-ago period are due to higher drug manufacturing costs related to ARC-520 in preparation for Phase II clinical trials, higher clinical trial expense related to Phase I clinical trial for ARC-520 and higher compensation expense primarily due to increased headcount as compared to the prior year.

Net cash used in operating activities for the first three months of fiscal 2014 were $7 million compared with $3.8 million in the prior year period. The change in cash used in operating activities is consistent with the change in operating expenses.

Turning to our balance sheet, our cash balance was $59.7 million at December 31, 2013. Including investments in fixed income securities, our cash and investments balance was $85.5 million at December 31, 2013 compared to $29.8 million at September 30, 2013. The increase reflects a $60 million offering closed in October. Additionally, the Company received cash inflow of $2.8 million from the exercise of warrants and stock options.

Our common shares outstanding at December 31, 2013 were 39 million, up 6.5 million from 32.5 million at September 30, 2013. Also at December 31, 2013, there were 51,291 shares of preferred stock outstanding. These preferred shares are convertible into 10.7 million shares of common stock. Common shares outstanding including the conversion of our preferred shares will be 49.7 million.

With that overview, I will turn the call back to Chris.

Thanks, Ken. As I mentioned, 2013 was a big year for us but we believe that 2014 offers even more opportunities for real and durable value creation. They include the following. This quarter we expect to begin a Phase IIa study of ARC-520 in patients with chronic HPV in Hong Kong. Next quarter we expect to complete dosing in the Phase IIa. At the end of the second quarter we expect to have an analyst investor day to disclose our next candidate. We will discuss the disease, target, preclinical data and clinical plan.

In the third quarter, we expect to release topline results from the Phase IIa. In the fourth quarter, we expect to begin a multidose Phase IIb study for ARC-520 and also in the fourth quarter, we expect to file an IND for our next candidate.

ARC-520 remains our top priority and primary value driver but as it moves through the Phase IIa, it will also serve as a powerful proof of concept for our broader platforms. I believe that this will represent an important inflection point as shareholder value may then be built simultaneously through the success of ARC-520 as a candidate and be a new candidate that enter the clinic relatively derisked. This becomes a story of leverage and speed.

We have developed a machine capable of pushing new candidates into the clinic rapidly that are all built on a validated delivery system. We have all the tools we need to build substantial shareholder value and create new therapies that could positively impact patients worldwide.

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

(Operator Instructions). Ted Tenthoff, Piper Jaffray.

Great. Thank you very much for taking the question. Just a question on the upcoming Phase IIa. What still has to be done? What are we waiting for for dosing and how quickly do you expect to be enrolling that? Are we going to do one cohort and then subsequently the second cohort? How do we expect this to roll out?

Thanks, Ted. Bruce, do you want to handle that call -- that question?

Good afternoon, Ted. So all we are waiting for now is the final approval from the Hong Kong authorities and we expect that fairly soon after completion of the Chinese New Year but we of course don't control that. But we are hopeful that that will come soon and then we will be ready to go.

We will complete enrollment in the first cohort of course before we would start the second cohort but we are not required by protocol to wait until the first cohort have all completed their follow-up. So once everybody has been enrolled and have had at least a relatively brief period of follow-up for the last patients in, we will be able to start the second cohort and we are hoping that that will go fairly quickly.

And you will be measuring viral load reductions as well but obviously the focus is on s-antigen, correct?

Well, we are going to be on a background of entecavir so viral load should already be fairly fully suppressed or maybe even undetectable. If there is a virus present, we will be measuring the further decline but many of these patients will not have a detectable DNA so the main (multiple speakers) is on s-antigen.

Awesome. Thank you very much and looking forward to hearing what the next program is too.

Thomas Wei, Jefferies.

I just wanted to understand, in the chimp study, the chimp did receive two doses of drug but you talk about it as being given so close together in time that it is actually more like a single dose of drug at just like twice the drug exposure. Can you remind me how that dose compares to the doses that are being used in the Hong Kong study? I'm sorry, I can't remember that.

Also a comparison of what surface antigen levels were in the chimp relative to what it might be in a e-antigen negative population in Asia?

Sure. Thanks very much, Thomas. The doses in the chimp were 2 mg per kilogram and 3 mg per kilogram. As you point out, those were -- it was really short exposure. Those two doses were separated only by two weeks and that was not meant to imply that we believe the dosing schedule in humans is going to be every two weeks. Rather we think it is going to the closer to a month. We were just trying to find what an effective dose might be in the champ in that study.

So we are -- in the Phase IIa, we are looking at 1 mg per kilogram and 2 mg per kilogram. We believe that those are both effective doses. Keep in mind that that chimp was extremely [viral] (inaudible) [antigenemic], much more so than we expect to see in humans and so it was a much higher bar in that animal than we will see in these humans.

And second, that animal had a mutant form of HPV that was a mismatch for one of our two sequences. Now it is not clear what the effect of that is. It could have been that one of the -- part of our drug was less effective than the other but for those reasons we believe that 1 mg and 2 mg per kilogram will be effective in people.

Now regarding the s-antigen levels. Bruce, do you want to comment on those levels in the chimp?

Right, they were very high and our expectation, Thomas, would be that they will probably be on the orders of two to three logs lower in the patients and maybe some even lower than that. But it is a little bit hard to predict. We will see a considerable amount of variability in s-antigen levels in this patient population but we would expect them to be quite a bit lower than they were in the chimp.

And just to follow-up, when you include all of these various factors, the difference in the doses and the difference between chimps and humans and the mismatch in the (inaudible) baselines, what do you think is a reasonable expectation for what we could see out of the single-dose study in terms of (inaudible) antigen effects?

What we are looking to get is about a log of knockdown that would last around a month. We believe we can get that in the 1 mg to 2 mg per kilogram range but if we can't, we believe that we can amend the protocol in Hong Kong and go higher. The Phase I was quite clean and we expect that should those data be reproduced in the Phase IIa that we could probably go higher should we need to but that is sort of our bogey.

Now it is not clear that we need to be that good. Four instance, you probably recall in the chimp with s-antigen we got somewhere in the 85% or so knockdown, so less than a log but that was sufficient to initiate this process that we believe was immune activation or immune reactivation.

So even though we would like to see a log in humans, that 85% or so at least in this one individual seemed to be enough to start that cascade of events that under chronic dosing could lead to a functional QR.

Great. Thanks.

You are welcome.

(Operator Instructions). (inaudible)

I have a quick questions about the missed target of the RNAi. I have two questions. The first is I saw the Arrowhead just on research (inaudible) just before the genotype B and I know there is a lot of people, patients with genotype C and those are closely related with liver cancer and the probability with liver cancer. So I just wonder is there any (inaudible) to support the genotype C? This is the first question.

A follow-up is for the genotype C and genotype B, there are two kind of mutations is the precore or the basal core promoters. So is there any difference per your comments about for those patients with basal core promoter mutations? Thank you.

Thank you very much. That is a very astute question. We designed, as you may know, ARC-520 consists of two siRNA sequences. The reason we have two is to give us -- or the primary reason to have two is to give us broader coverage across genotypes because we know there are multiple major genotypes in hepatitis B. As you mentioned, B and C are two of them. The chimpanzee we studied happened to be a genotype B.

We tested our two sequences or we screened our two sequences with gene bank which has something on the order of 2500 or so sequences in it of HPV and among the two sequences, together we cover 99.6% or 99.9% of all those sequences. So we should cover -- we believe that we cover all the primary genotypes with at least one of the two sequences.

Now regarding mutations in B or C, again we've got these two sequences and they are both designed or they are both generated in highly conservative regions so presumably we should cover the vast majority of individuals. Now that is not to say that we will be equally efficacious on all genotypes. This is a very difficult virus as you know and it is certainly possible that this therapy could be more or less efficacious in certain genotypes. There is no theoretical reason for that right now but it is certainly a possibility given that we don't know very much about the virus.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you very much for your attention and for participating on the call today and I look forward to talking to you soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.