Arrowhead Pharmaceuticals Inc (ARWR) 2015 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Arrowhead Research Corporation FY15 year-end financial results conference call.

(Operator Instructions)

I'll now hand the conference call over to Vincent Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, Vince.

Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its FY15 fourth quarter and year ended September 30, 2015. With us today from management are President and CEO, Dr. Christopher Anzalone, who will provide an overview of the year; Bruce Given, our Chief Operating Officer and Head of R&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 up the call to your questions.

Before we begin, I'd 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 ARC-520, ARC-521, ARC-AAT, ARC-F12 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, 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'd 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 FY15 and the recent period, Arrowhead made dramatic progress with our clinical stage drugs, our rapidly expanding pipeline, and on the underlying technology platform that enables us to develop what we think are best-in-class RNAi therapeutics. We accomplished some important multi-year goals, and before discussing some of the specifics I want to spend a moment to provide context about how you should view the Company now versus a year ago.

We've always said that a key benefit of developing a suite of RNAi therapeutics is that data and experience from each program can be leveraged to inform the development of new drugs. Each of these new drugs can potentially have progressively lower risk and a faster path from discovery to human trials if they are built on an underlying delivery platform that is validated in humans. Once this validation is achieved in one candidate, it may provide better certainty in future candidates. We believe that recent data on the ARC-520 drug candidate against chronic hepatitis B infection validate our DPC delivery system and show definitively that we can achieve robust, well tolerated knockdown of target genes.

So what did we show? As you probably know, we've been very active over the last few months discussing new data on ARC-520 and our growing HBV program. We hosted an Analyst and Investor Day in September, presented data in several presentations at the AASLD Liver Meeting last month and presented additional data during two presentations at the HEP DART Conference last week. These presentations included data from the ARC-520 clinical program, as well as from a multi-dose study in chimpanzees. These studies were going on in parallel, which allowed us to learn a lot about ARC-520 and the HBV viral lifecycle. Some of these new concepts challenged long-held beliefs about HBV and, we believe, pushed the field forward.

First, from our clinical studies we showed that Arrowhead's proprietary DPC platform can consistently and deeply silence target genes in humans. In HBV e-antigen positive patients who are not previously on anti-viral treatment, a single-form milligram per kilogram of ARC-520 showed reductions in circulating e-antigen of up to 98% and reductions in surface antigen, or s-antigen, of up to 99%. For those who were around last year, you'll remember that there was a commonly held view on Wall Street that a 1 log, or 90% reduction in s-antigen, would be seen as a positive result. We far exceeded that level.

The clinical study, combined with insights from our work in HBV infected chimpanzees, also helped us to identify subpopulations of HBV patients based on relative levels of viral cccDNA versus viral DNA integrated into the host genome. Specifically, we learned that e-antigen-negative patients and patients that have been on chronic therapy with nucleoside analogs, or NUCs, tend to have lower levels of viral cccDNA. We also learned that DNA that integrates into the patient's genome becomes a significant source of s-antigen production. ARC-520 was specifically designed to target all mRNA transcripts, and thus all proteins, produced by HBV cccDNA, but not necessarily those produced by integrated DNA. We believe this is why we were seeing less s-antigen reduction in E-negative and treatment-experienced patients. This was a key finding that helped to inform the direction of the program.

So where does this position ARC-520 as a potential therapy of chronic HBV? Our data suggests that we could be a very potent -- that we could be very potent in e-antigen-positive patients who have not been on long-term NUC therapy. This is a very large patient population. It's thought this population makes up approximately one-half of chronic infections in the US and about one-third in Europe. It is believed that the Asian populations will be similar to the US in this respect. So taken together, this represents a huge global population. If this were the only patient type we could address and ARC-520 could enable consistent functional cures, it would represent an extremely large market opportunity for a Company of any size, but we think ARC-520 has potential even outside this population.

Based on our clinical and chimp data, we would expect to moderately reduce s-antigen production after a single dose of ARC-520 and deeply suppress all other viral proteins in other populations. We have good data indicating very deep reductions of e-antigen and correlated antigen production, and we would expect this could carry over to X-antigen and other proteins. These viral proteins are all immunosuppressive and involved in various parts of the viral lifecycle. Deeply suppressing them, particularly over time, under multiple dosing could have destabilizing effects on the virus and help achieve functional cures. It is not unreasonable to expect that the virus requires production of at least some of these proteins to enable chronic infection and evasion of immune control. Therefore blocking them, as we have shown with ARC-520, could have important therapeutic effects.

What if we're wrong about this and ARC-520 is only capable of addressing the admittedly large population of e-antigen-positive patients who have not been treated with NUCs? What about the rest of the market? We have nominated ARC-521 to address these populations as an insurance policy for ARC-520, and to better ensure we can address more of the HBV market. ARC-521 targets both cccDNA and integrated DNA. Our chimpanzee study showed that in e-negative animals predicted to have higher relative levels of integrated DNA, administration of the new RNAi trigger in ARC-521 lead to a further 2 logs of s-antigen reduction. This served as a powerful proof-of-concept that between ARC-520 and ARC-521 we can potentially address all of the HBV market. We expect to file an IND or equivalent for ARC-521 by the middle of 2016.

Turning to our chimpanzee study, we believe this was the longest and most comprehensive study of chronically HBV infected chimpanzees ever conducted. The wealth of data that continues to emerge from this study has been invaluable to us as we plan and execute our HBV development programs, some of which we have discussed publicly and some we have not.

We have made multiple presentations on this study recently, but I want to highlight a key finding we just discussed last week at the HEP DART conference. We found that after treating chronically infected chimpanzees with between 6 and 11 monthly doses of ARC-520 in combination with nucleoside analogs, seven of nine chimpanzees showed signs of immune reactivation during the ARC-520 treatment phase. To review, the hepatitis B virus causes infected cells to produce several proteins that suppress the host immune system and therefore enable chronic viral infection by removing immune control. Our goal with ARC-520 is to reduce expression of all those proteins, and thereby enable reconstitution of the immune system. Our chimp data demonstrated that we can do this. And it is a real breakthrough. We consistently enable the immune reconstitution not by directly stimulating the immune system, which is challenging and carries with it ancillary risks, but by essentially turning off the virus. As we said in the press release announcing these data, this is a big deal.

This finding represents a strong proof-of-principle that ARC-520 can begin the process of waking up the immune system even in those chimps without deep reductions in s-antigen, which can potentially lead to immune control and functional cures. We've been asked questions over the last few years, what evidence do you have that ARC-520 can consistently lead to a therapeutic immune response? Our answer was that it was a theory that made sense and that many experts subscribe to. But we had no direct evidence of it. The chimp data now provides that evidence.

Between our extensive chimp data and our ongoing clinical data, we believe we have clearly established ourselves as leaders in HBV. Small biotech companies at their best strive to lead a field in the translation of science from the lab to development to new therapeutic agents. We are clearly doing that, but we are also leading the scientific community in understanding many aspects of the viral lifecycle, and that is uncommon. We have changed the HBV textbooks, and this is important for the entire field, and of course gives us tremendous ammunition in developing therapeutics that may lead to consistent functional cures. As I mentioned, we have discussed some of these data and some we have not. We had a clear lead in developing a potentially powerful therapeutic aimed at inducing functional cures. And our deep understanding of the virus helps us increase this lead.

So we have clear time, data, and knowledge of antigens over our competitors. But safety has to be the overriding priority in any drug development. We must ensure that our products have an appropriate safety profile. So where do we stand on this? ARC-520 has now been given to over 100 people and we continue to see no signs of end organ toxicity. We've had no discontinuation due to the drug, and have seen no adverse events rated as serious or severe. ARC-520 has been very well tolerated. I would put our safety profile up against any of our competitors in the HBV and the RNAi fields. This has important ramifications not only for ARC-520, but any candidate that we develop using the same DPC. These include ARC-521, ARC-AAT and ARC-F12. We see this as an important risk mitigator, and therefore a significant value driver.

With these exciting data behind us, we now focus on our ongoing multiple-dose and combination Phase 2b studies. During 2015 we initiated five multiple-dose studies of ARC-520 in the US, Europe, Asia, Australia and New Zealand. Those studies are Heparc 2002, 2003, 2004, 2008, which we also call MONARCH, and an open label extension to 2001. Bruce will discuss these during his clinical update.

Beyond ARC-520 it has been a similarly productive year for us in terms of platform development and pipeline expansion. On the platform front we acquired Novartis' entire RNAi business. We anticipate this acquisition will provide us with expanded freedom to operate, proprietary technology that appears to enhance the activity of RNAi triggers and a license to non-delivery Alnylam RNAi IP for 30 targets. We now have additional flexibility to optimize each new candidate using the most effective RNAi trigger design and modifications.

In terms of pipeline expansion, during 2015 we added multiple internal programs. We initiated a Phase 1 study of ARC-AAT against alpha-1 antitrypsin deficiency, or AATD, which is a rare genetic disorder that can lead to lung damage and liver disease. During the Phase 1 study we met a predetermined level of knockdown in healthy volunteers and transitioned the study to enroll patients with AATD. ARC-AAT was also granted orphan drug designation by the FDA this year.

Beyond our two clinical stage programs, we added and presented data on the following pre-clinical programs. As discussed earlier, ARC-521 is a new therapeutic in Arrowhead's HBV portfolio that was developed to target both cccDNA, derived mRNA transcripts like ARC-520, as well as those from HBV DNA that has integrated into host DNA. ARC-F12 is designed to reduce the production of factor-12 with the goal of providing a prophylactic treatment for hereditary angioedema, or HAE, and thromboembolic diseases. ARC-HIF2, that is designed to reduce the production of hypoxia-inducible Factor 2 alpha, or HIF-2 alpha, to treat clear cell renal cell carcinoma. It is the first drug candidate using a new DPC delivery vehicle designed to target tissues outside the liver.

And ARC-LPA, that is designed to reduce production of apolipoprotein A, or apo(a), a key component of lipoprotein(a), or LP little A, which has been genetically linked with increased risk of cardiovascular diseases. ARC-LPA employs Arrowhead's new hepatic delivery format being developed for subcutaneous administration.

We have clearly been very busy this year. So what does this mean for the Company and for our shareholders going forward? Arrowhead is a substantially more mature Company from a development standpoint, as well as from an investment standpoint. Our pipeline is more diverse with an additional clinical program and multiple candidates progressing toward the clinic. Our underlying technology of the DPC delivery systems has achieved clinical proof-of-concept with ARC-520. We have expanded beyond just IV-administered liver-targeted therapeutics and now have a subcutaneous candidate and an extra-hepatic candidate. Our tool box of RNAi chemistries has expanded, giving us additional capabilities and flexibility. With that overview, I'd now like to turn the call over to Dr. Bruce Given, our COO and Head of Development. Bruce?

Thank you, Chris. Good afternoon, everyone. As Chris mentioned, we presented data on ARC-520 at multiple venues over the last few months. These presentations are available on the Events page of our website if you would like more information. But let me take a moment to highlight some of the key findings.

In the Heparc 2001 clinical study, 58 patients with chronic HBV received doses between 1 and 4 milligram per kilogram of ARC-520 in seven cohorts. The cohorts varied by ARC-520 dose, e-antigen status and prior NUC treatment status. The primary objectives of the study were to determine tolerability and to measure the depth and duration of surface antigen reduction in response to a single dose, or two doses in the case of Cohort 6, of ARC-520 in combination with entecavir. Arrowhead also assessed additional secondary and exploratory endpoints.

On the safety side, ARC-520 was well tolerated with no serious or severe adverse events, no dose-limiting toxicities, no discontinuations due to the drug and a modest occurrence rate of AEs that were all deemed unrelated to study drug by the principal investigator. No AE occurred more than once. There was a low occurrence rate of abnormal laboratory tests with no observed relationship to timing or dose. There were no laboratory changes believed to indicate drug toxicity.

On the activity side, surface antigen was reduced substantially with a maximum reduction of 1.9 logs, or 99%, and a mean maximum reduction of 1.5 logs, or 97% in treatment-naive e-antigen positive patients in Cohort 7. Also in Cohort 7 ARC-520 in combination with entecavir achieved maximum reductions of HBV DNA, e-antigen and core-related antigen of 4.3 logs, or 99.995%, 1.7 logs, or 98%, and 1.2 logs, or 94%, respectively. So clearly the drug has shown very good single-dose activity.

Consistent with findings from our chimpanzee study, also presented at AASLD, variations in viral antigen reduction indicated that patients previously treated with chronic entecavir and patients that were treatment naive and negative for e-antigen likely had lower levels of cccDNA-derived mRNA transcripts. As such, e-antigen positive treatment-naive patients experienced a greater relative reduction in s-antigen than patients that were e-antigen-negative or treatment experienced.

We are now focused on our global multiple-dose and combination Phase 2b studies, which are currently enrolling patients. These studies are as follows. The 2002 study is testing ARC-520 plus NUCs in NUC-experienced e-negative patients. 2003 is testing ARC-520 plus NUCs in NUC-experienced e-positive patients. 2004 is our US-only study testing NUCs plus ARC-520 in NUC-experienced e-positive patients. The 2001 extension study is open to patients that were treated in our single-dose 2001 study. We will be testing ARC-520 plus NUC in e-negative and e-positive patients who are both NUC-experienced and NUC-naive when they entered the 2001 study. Unlike 2002, 2003 and 2004, this study is open label. So we will have flexibility as to when we disclose data.

The final study in the series is 2008 for our MONARCH study. Let me say a few words about this study which, as with the others, is currently actively enrolling patients. We view Monarch as a test kitchen of sorts in which we intend to assess various dosing regimens of ARC-520 in combination with other agents. It is a flexible iterative design, so we can ask specific questions about ARC-520 in small open-label cohorts and quickly initiate additional cohorts based on the answers that we get, or the availability of new agents to be tested in combination. The goal of MONARCH is to identify the recipes, if you will, that enable functional cures in patients.

Today the test kitchen only has a few ingredients to work with. ARC-520, NUCs and interferon. So the initial six cohorts that are enrolling now are looking at ARC-520 as monotherapy and in combination with NUCs and interferon. These cohorts are currently recruiting both e-antigen-negative and positive treatment-naive patients and are stratified by HBV genotype. Based on data recently presented at Hep DART, ARC-520 in combination with NUCs lead to immune reactivation after multiple doses in seven of nine chimpanzees chronically infected with HBV. So we are very eager to see results as they emerge from Monarch and our other multiple-dose studies. As mentioned, Monarch is open label so we have flexibility as to when and how we disclose data. As far as additional ingredients for the test kitchen, there are definitely some other interesting agents and mechanisms that, when ready, we would like to add to a MONARCH cohort. Stay tuned during 2016 on this front.

Let's now turn to ARC-521, the second drug in our HBV portfolio. As we've discussed, this drug takes the best RNAi trigger from ARC-520 that targets all transcripts produced by viral cccDNA and adds a second trigger that targets the s-antigen transcript produced by integrated DNA. We are currently conducting GLP toxicology studies and manufacturing the drug supply to support clinical studies that we plan to begin in the middle of 2016. While the study protocols are still being developed, I do want to mention that it is our intent to have Phase 1/2 development path that can hopefully get us to multiple-dose data in patients quite quickly. Remember that we are using the exact same DPC as ARC-520 and our experience and that of the investigators that have conducted the ARC-520 studies suggest that the safety profile should support an accelerated path.

Let's now move to ARC-AAT, our drug candidate for the treatment of liver disease associated with the rare genetic disorder alpha-1 antitrypsin deficiency We are conducting a Phase 1 single-dose escalation, first in human study to evaluate the safety, tolerability and pharmacokinetics of ARC-AAT and the effective circulating AAT levels. The study has been enrolling in dose cohorts of six subjects each, with participants randomized at a ratio of 2 active to 1 placebo to receive a single intravenous injection of either ARC-AAT or a placebo.

The study consists of two parts. Part A in healthy volunteers and Part B in patients with the PiZZ genotype of the alpha-1A trypsin disease. Part B is currently enrolling in Australia, Germany, UK and the Netherlands. We will continue to dose escalate in patients until we believe that ARC-AAT is achieving maximal suppression of the AAT produced in the liver. With that, I'd like to turn the call over to Ken Myszkowski, Arrowhead's Chief Financial Officer. Ken?

Thank you Bruce, and good afternoon everyone. As we reported today, our net loss for the year ended September 30, 2015 was $91.9 million, or $1.60 per share based on 57.4 million weighted average shares outstanding. This compares with a net loss of $58.7 million, or $1.25 per share based on 46.9 million weighted average shares outstanding for the year ended September 30, 2014.

Total operating expenses for the year ended September 30, 2015 were $96.4 million compared to $53.5 million for the year ended September 30, 2014. Net cash used in operating activities in FY15 was $65.7 million compared with $35.4 million in FY14, an increase of $30.3 million, primarily due to higher R&D expenses of $24.1 million reflecting higher drug manufacturing costs and higher clinical trial costs and progress of ARC-520 and ARC-AAT. Additionally, our salary and compensation-related costs increased on higher headcount and general and administrative costs increased as a result of higher outside professional service costs. The change in operating expenses were additionally influenced by a charge of $10.1 million for acquired in-process research and development costs, a component of the accounting related to the Novartis acquisition.

Turning to our balance sheet, our cash and investments of cash were $98.8 million at September 30, 2015 compared with $177.3 million at September 30, 2014. The decrease in our cash and investments balance reflects the $65.7 million cash used in operating activities as well as a $10 million cash payment related to the Novartis acquisition and $2 million in capital expenditures. For the quarter ended September 30, 2015 our cash used in operations was $12 million compared to $13.1 million during the quarter ended June 30, 2015 and cash used in operations of $16.4 million in the quarter ended March 31, 2015. Our common shares outstanding at September 30, 2015 were 59.5 million, and would be 62.2 million assuming conversion of the preferred shares outstanding at September 30, 2015. With that brief overview, I will now turn the call back to Chris.

Thanks, Ken. We feel very good about where we are today, and we expect considerable progress over the next several quarters and beyond. We've been asked about capital needs so I wanted to address that briefly here today. We are not prepared to give forward guidance on our cash burn since it will depend largely on the number, size and speed of enrollment of the clinical trials we have open at any given time. I would, however, like to go through a list of goals that we believe that we will hit during calendar 2016 and, based on our internal forecasting, can all be accomplished with the cash we currently have on hand.

These goals are: 1, fully enroll the currently planned six MONARCH cohorts; 2, add new MONARCH cohorts; 3, enter into one corporate collaboration in MONARCH with a new compound for combination therapy; 4, complete enrollment of Heparc-2002; 5, complete enrollment of Heparc-2003; 6, complete enrollment of Heparc-2004; 7, complete enrollment of Heparc-2001 open-label extension; 8, file an IND or equivalent for ARC-521; 9, file an IND or equivalent for ARC-F12; 10, complete Phase 1 study of ARC-AAT in healthy volunteers and patients; 11, initiate longer-term multi-dose study of ARC-AAT; and 12, report additional preclinical data for ARC-LPA and ARC-HIF2. As you can see we have many events over the coming year that are opportunities to drive substantial value creation for our shareholders. I would now like to open the call up to questions. Operator?

(Operator Instructions)

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

Good afternoon. This is Judy Liu on for Michael Yee at RBC Capital Markets. Congrats on the quarter, and thanks very much for taking the question. Two questions, if you don't mind.

One is, thanks for the overview on all of your Series 2002, 2003, 2004, 2008 and 2001. And I was wondering, with these multi-dose studies could you give us a sense of when we might get data, when data will start rolling in?

Thanks very much for the question. So it's a difficult question, just because we don't know how fast we can enroll these. We would like to release data in a proper way at scientific conferences. I expect that we could top-line those data before conferences. But it's hard to know how fast we can get these all enrolled and then disclose. So I can't give you too much guidance on most of those.

I can say, however, as Bruce pointed out in the prepared remarks, that the long-term extension of 2001, as well as Monarch are both open-label studies. And so we should have good flexibility on when and how we can disclose those data. We don't have to wait for the study to finish and to break the blind. We will have nearly real-time data on how those are going. And so we have some flexibility on disclosing those.

So I'd just say, stay tuned. It is -- we will, as I mentioned for our goals in 2016, we expect to finish enrolling many of those studies in 2016. And I think we can be talking about those data also in 2016.

Great. So just to follow-up on that. So basically, especially with your open-label extension studies, we should be getting some kind of interesting data by next year, ASLD then?

We have the flexibility to do that. Again, I can't commit that we will be presenting data at ASLD because A, we don't have the power to insure that. Those are, as you know, those are peer-reviewed slots and so we will see. And second, we just don't know on timing.

My point, though, is that with those two studies we expect those to be reasonably rapid enrollers. And we should be able to see data on almost a real-time basis. And so we have the flexibility to provide interim data as it comes in. So just stay tuned on that.

Great, thanks. And one last question, if you don't mind. So previously you had also talked about recognizing the need for combination therapy and you talked a little bit about collaboration partnership. Could you give us an update on where you are, where your thoughts are? Like, are you actively engaging in talks right now, and do you have a lot of conviction on going into collaboration partnership next year? Any help here would be great.

Sure. So we do have good conviction on entering a collaboration in an additional Monarch cohort next year. Here is what we have going for us. We've got a drug in ARC-520 that clearly works. It does what it's designed to do. It is active. Is it efficacious? I don't know. That will depend upon whether or not we see functional cures. But it is knocking down the production of proteins that are transcribed from cccDNA. And it is clearly well tolerated. So we have, I think, a reasonably large lead in this field.

So as there are other agents that are ready to be tested, we are a pretty good candidates because we are farther along than other people and because we have what appears to be right now a well tolerated drug. So we feel quite confident that will happen next year.

We are talking to an awful lot of people who are developing compounds. And so they know who we are and they have a good understanding about what we're doing. So again, I am confident that we will do something with a collaboration in Monarch in 2016.

Thanks so much.

Sure.

Thank you. Our next question comes from the line of Eun Yang with Jefferies.

Hi this is Carmen on your Eun. Thanks for taking the questions. So you mentioned the human data presented in September showed greater treatment effect in the NUC-naive E-antigen-positive patients. Then last week we saw more data in chimps showing evidence of immune reactivation across E-antigen-positive and negative chimps.

Could you just help us kind of reconcile this? And maybe talk about the implications of the findings in chimps on data observed in humans to date and your future trial designs?

Sure, thanks for that. It's a great question. So we never expected immune reactivation or anything like that after a single dose in humans. Remember, these patients have been immunosuppressed for decades, many of them. And so we always view that as asking way too much of the drug to see that kind of effect after a single dose.

Now with the chimps, they've also been infected for quite some time and they've also been immunosuppresed for quite some time. And so we also would not have expected with them to see immuno-reactivation after a single dose. But remember, those chimps were treated monthly for between 6 and 11 doses. So they had more of a chance to -- their immune system has more of a chance to reconstitute itself. And so I think that's the big difference there.

But also now keep in mind about the chimp, and I think this puts the data into some perspective. There has never, to our knowledge, been a report of a chimp curing itself, or functionally curing itself. And of course, that's quite different than humans. Humans can spontaneously functionally cure.

So while the chimps, we think, are really good models for the life history or the lifecycle of the virus and the physiology of the animal in relation with the virus, it may be that you can only go so far with the chimp. And you can't actually get to that cure because again, not only have we not seen a spontaneous cure in a chimp, we haven't even seen a therapy-derived or therapy-induced functional cure in a chimp.

So the fact that we were able to reawaken that immune system I think is a really big thing in those animals. And again, the fact that we didn't just see it in one or two chimps, but we saw it in seven of nine is a really big thing. So the drug is doing what we wanted it to do, not only in chimps but also in humans. And the chimps just give us a hint on how it may perform in humans upon multiple dosing. We're really looking forward to those data, not just in E-positive NUC-naive patients, but really in all patients. It's going to be really interesting to see how this plays out.

As we mentioned in the prepared remarks, we are -- we should be knocking down production of all viral antigens. There's been an awful lot of focus on this S-antigen theory, if you will, that you need to reduce levels of S-antigen to enable immune system to reconstitute itself and then to control the virus. And that may be the case, but we think it's probably more complicated than that.

And there is increasing information, increasing data that this X-antigen as well as others could be important. So the fact that we have a really good, complete -- or we expect a really good, complete response with all of those proteins, I think, is going to be important even beyond, again, the NUC-naive E-positive patients.

So we are hopeful that the chimps are giving us some clue as to what we're going to see in humans, but we'll have to wait and see. I think that 2016 is going to be a fascinating year for ARC-520 and ARC-521.

Great. Thank you very much. And then one quick follow-up. On ARC-AAT, you mentioned you hoped to initiate a long-term study in 2016. Do you have any sense for when we might be able to see some data from the Phase 1 trial that's ongoing?

Yes. So I don't have a good answer for that right now because we're still enrolling that. We have, as you know, we were enrolling that entirely in Australia and then we expanded throughout multiple sites in Europe to insure that we have a good wide net to catch as many patients as we can.

And so I think that we've got -- we have structurally we've got a good design to bring in the patients we need. But even so, I just don't know when that's going to be complete. And we also don't know how high a dose we're going to go. We're exploring that right now. So stay tuned on that.

My hope is that once that's finished we can -- and the data are analyzed that we can top-line the data and then present a more, a fuller data set at a scientific conference, hopefully some time in 2016.

Okay, great. Thank you very much.

You're welcome.

Thank you.

(Operator Instructions)

Our next question comes from the line of Donald Hutchinson with [State Farber Financial].

Good afternoon. I read recently where J&J purchased a early stage company involved in hepatitis B, I believe, by taking a pill. I'm just wondering whether, given the obvious industry interest in hep B, whether Arrowhead has ever fielded any interest from larger companies along those lines?

Yes, thanks for that question. So we are talking to companies large and small about ARC-520, about ARC-521 and about potential collaborations as appropriate in Monarch. And so while we're not going to speak to any particular discussions that we have with companies, one can be comfortable that we are speaking with all of the players and that we're not hiding the ball here.

I think we're seeing some pretty exciting things between the chimp study and our clinical study. We've got, we think, a pretty exciting mode of action. We have a drug that appears to be quite well tolerated so far. And we now have an industry that has woken up to the big opportunity and the big unmet medical need of hepatitis B. So we are speaking with a number of companies at all times.

Any thoughts about the characteristics of future or whatever about the hepatitis B pill?

We are a ways away from a pill providing a functional cure. We haven't seen anything -- we haven't seen any oral drug that we think is quite close to that. So no. We have no opinion on a pill that will magically assault hepatitis B any time soon.

Thank you. Our next question comes from the line of Ted Tenthoff with Piper Jaffrey.

Great. Thank you very much. Apologies, I was disconnected actually from the call earlier, so if my questions been answered. I guess I kind of had a sort of higher level question.

With other companies developing RNAI approaches, how do you sort of stay ahead of the curve and not sort of inform the competition in terms of where we're going? And in particular I'm kind of thinking about the recent chimp findings, and in particular to me that really means that it's more than just S-antigen holding immune reactivation. So high level competition about how you stay competitive against the field in general, but RNAI companies in particular.

Sure. Thanks very much, Ted. So even at a high level I think there's a number of answers to that. First is we stay ahead by staying ahead. We have a large time lead, I think, against our competitors. We were the first ones in the clinic and we are deeper into the clinic than any of our competitors. And I think that's important.

It's a very difficult virus. And I think that the company that ultimately solves this or is part of the solution is going to learn an awful lot about the virus during these clinical trials. That's why Monarch is so important to us that it's an iterative study. So the fact that we are first out there and we are moving flexibly to make sure that we can employ what we learn is good, is important.

Second, I guess, answer is that we have a complete package here. ARC-520 and ARC-521 are both designed to knock out all of the viral proteins. I think that's important. As you touched on it, there's been an awful lot of talk about this S-antigen theory, if you will, and we think S-antigen is important. But we don't think it's the only thing.

I mentioned X-antigen as an example, and there's an awful lot of talk that that is going to be an important player in inducing the functional cure. We knock that out as well. So I think the fact that we are not just focusing on S-antigen or something else is important to us.

Third, we have now a pretty large safety profile, or a safety profile that's based on a pretty large sample size. As I mentioned, we have been in over 100 people now. And we have a safety profile that I would put up against anybody. You mentioned RNAI in particular. I'd put this up against any RNAI player. I think that we have been -- we always thought it was going to be a well tolerated drug. And we have even exceeded our own expectations so far.

And then finally, we have generated a ton of data in our clinical programs as well as in this chimp study. We've got blood samples every two weeks in these chimps, we've got multiple biopsies and we have spoken a lot about them. But we've not talked about everything we've learned. So I think we still have a competitive advantage as it relates to what we've learned about the virus and we will certainly use that as we are designing our clinical programs and as we move forward in Monarch as well as other studies.

That's really helpful, Chris. I appreciate it.

No problem.

Thank you. I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Christopher Anzalone for any closing comments.

Thanks very much for everyone listening today. And we wish you all a happy holiday season. And we look forward to seeing you in 2016.

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.