Arrowhead Pharmaceuticals Inc (ARWR) 2016 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Arrowhead Research Corporation FY16 first-quarter financial results conference call.

(Operator Instructions)

I will 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 fiscal 2016 first quarter ended December 31, 2015. With us today from Management are: our President and CEO, Dr. Chris Anzalone, who will provide an overview of the quarter; Dr. 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, Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, including without limitation those 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 Reports 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 Christopher Anzalone, President and CEO of the Company. Chris?

Thanks, Vince. Good afternoon everyone and thank you for joining us today. I'd like to start the call by addressing the weakness we've seen in the broader markets, and in particular within the biotech sector. It has been a difficult start of the year for the overwhelming majority of biotech companies and we at Arrowhead have been frustrated that our stock price does not really properly reflect what we see is our true value. That is unfortunate and currently uncomfortable, but this is a cyclical issue not a structural problem in our view.

There have always been cycles in the biotech capital markets and while the field is in a difficult cycle now, this will pass. This is a normal part of working in the sector and as long as we plan for such disruptions, have a flexible cost structure, and are going after important diseases in novel ways, we can build value during these times. I have always thought that we could get through anything as long as we could say four things.

They are: one, our technology works, two, we are working to solve real medical problems. Three we have capital now, and four we have access to additional growth capital. We believe that all of these are true today. Let us look at the past quarter and the period since our last conference call through that lens.

This was a pivotal period for Arrowhead in terms of providing further validation of our technology and setting up the rest of the year with multiple milestones and therefore value inflection points. We presented important data from our ARC-520, our drug candidate against chronic hepatitis B infection, showing that it does what it is designed to do and more broadly, that our proprietary DPC delivery platform can effectively and consistently silence target genes in humans. This is a critical step for us and allows us to enter the next stage of growth for Arrowhead.

The next step for ARC-520 is multiple-dose Phase-2 studies. We have begun 5 separate Phase-2 studies at 25 sites and counting, spanning 4 continents. During 2016 we expect to have over 200 patients on various multiple dose regimens, and we also intend to add cohorts including at least one clinical collaboration with an additional novel agent. This is a large number of patients, so ARC-520 is ultimately helpful in enabling functioning cures. I believe we have a good chance of seeing evidence this year.

Now, what are the chances that we see something exciting? I believe quite good. Based on human and animal data that we presented over the last few months at our Analyst Day, at AASLD and HEP DART ARC-520 is highly active against cccDNA derived mRNA transcripts, and thus can dramatically reduce the production of all HBV proteins. In fact, I believe we set a new single-dose knockdown record for RNAi.

In addition, our long-term study in chimpanzees showed that after repeat dosing, seven of nine animals treated with ARC-520 exhibited signs of immune reactivation. Interestingly, it took as few as three doses of ARC-520 to begin to see these signs. Further, given ARC-520's mode of action, it makes intuitive sense that it could be part of a therapy that leads to functional cures.

Evolution drives toward efficiency so we think that expression of all HBV proteins is likely important for normal function of the virus and maintenance of chronicity. Put another way, we would expect a silence in all viral proteins, would make it increasingly difficult for the virus to continue to evade immune control, particularly with an otherwise healthy immune system or one that is stimulated by another agent. Taken together, these and other evidence give us confidence that ARC-520 will play a role in enabling functional cures.

If we do see encouraging data in 2016 and beyond, when can investors expect to see this? This of course is a difficult question because if we do see functional cures we do not know how long patients will need to be on therapy to experience them. However, the 2001 extension study which is open to most of the patients in the 2001 single- and two-dose study, and the MONARCH study are both open label. We see unblinded data in nearly real time and have flexibility as to how and when we communicate them. We intend to present data at relevant medical meetings, but upstream of that, we will look for opportunities to give updates on what we are seeing which may happen at any time. So stay tuned.

Remember that there are no available therapies that lead to a reasonable number of functional cures and consequently even relatively infrequent functional cures during the early exploratory phases of our studies will be very exciting for Arrowhead, and for the approximately 350 million to 400 million patients worldwide who are chronically infected with HBV.

What about competitors? As with any clear unmet medical need there is now meaningful competition in this space, and big pharma has recently focused on the opportunity. However, we are substantially ahead of our competitors. We have the strong advantage of data from the long-term chimp study and dozens of patients. Our safety profile has looked good and we do not require steroid pre-treatment that brings its own AEs, and immuno suppresses the patient at the exact time that a therapy is trying to enable the immune system to reconstitute itself. Given where we are in multiple Phase-2 studies now, we believe that if a breakthrough in HBV is going to happen in the next 12 months it should come from us.

Turning to ARC-521, the second drug in our HBV portfolio, we intend to accomplish some important steps during 2016. We previously reported that our clinical studies and our chimpanzee study showed the e-antigen-negative patients and those on chronic anti-viral therapy tend to have a lower levels of viral cccDNA. We also learned that DNA that integrates into the patient's genome can become a significant source of s-antigen production.

ARC-521 is designed to hit mRNA transcripts deriving from both HBV cccDNA, and integrate HBV and DNA. This means that ARC-520 may be optimal in patient populations with higher levels of cccDNA, such as e-antigen-positive NUC-naive patients. And ARC-521 may be optimal in patients with lower levels of cccDNA. We will have to see what the various clinical studies show, but we think having both drugs should allow us to address all of the HBV market in a powerful way.

ARC-521 uses the same DPC delivery vehicle as ARC-520 and ARC-AAT, so we have good amount of experience with it clinically. To date it has been well tolerated at all dose-level study, which gives us great confidence as we prepare to initiate clinical studies of ARC-521 during 2016. We have an aggressive plan for the development of ARC-521 that includes an accelerated first-in-man Phase 1, 2 design intended to get us into multiple-dose study in patients quite rapidly. We will talk more about this design as we get closer to the initiating study which has planned regulatory submissions toward the end of the second-quarter 2016.

In addition to ARC-520 and ARC-521 we have an equally eventful year planned for ARC-AAT. Our drug against liver disease associated with a rare genetic disorder that causes alpha-1 antitrypsin deficiency, or AATD. We recently announced that ARC-AAT was granted orphan-drug designation in Europe and previously was granted the same designation in the US in 2015. We are currently conducting a Phase-1 single ascending dose study that consists of part A in healthy volunteers and part B in patients with AATD.

During 2015 we achieved a predetermined level of AAT knockdown in healthy volunteers, which triggered the study to transition into patients. We have since been enrolling patients at several sites in Australia and Europe. We decided that it would be useful to compare AAT knockdown in healthy volunteers at the same therapeutic dose levels as patients are or will be receiving. Because of this we have added additional cohorts in part A of the Phase 1 in parallel with part B, and we have continued to dose escalate in healthy volunteers alongside patients.

We intend to complete enrollment and release top-line results from the expanded part A and part B this year, and then report full data at a relevant medical meeting. We think that AATD is a great target for an RNAi-based intervention, and one that has relatively low target risk. AATD is caused by a genetic mutation that leads to the production of a misfolded AAT, produced primarily in the liver. This misfolded protein is not efficiently secreted and accumulates in hepatocytes, which is thought to be the cause of progressive liver disease.

Patients with mutations that make no AAT have normal livers. It seems like a very straight line between knocking down production of this protein in the liver and an ultimate clinical benefit for patients. We're preparing to begin a pilot Phase 2a in multiple dose study that we expect to initiate and hopefully fully enroll this year. The biology of the disease is clear so we believe that ARC-AAT Phase-2a study, combined with the results from the Phase-1 study may represent critical proof of concept. Once that has achieved we can discuss with regulators the potential endpoints of a pivotal study.

Having orphan-drug designation in the US and Europe allows us to have expanded interaction with regulators, which we intend to leverage to identify the best path to marketing authorization and ultimately to patients with AATD. As you have heard, there are a lot of potential impactful events for our lead clinical programs planned for 2016, and many more beyond that. It is our greatest priority to ensure that these are properly resourced, because they are our key near-term value drivers. We've clear leadership positions in HBV and liver disease associated with AATD, and we have the potential to be both first and best in class.

We are building on success -- on this success through a pipeline that includes ARC-F12, ARC-HIF2 and ARC-LPA, that address other high-impact diseases. In order to support the development of these drugs and continued improvements to our underlying platforms, which now includes subcutaneous and extrahepatic delivery constructs, we have expanded the Company and our capabilities over the last few years in terms of head count, facilities and equipment. We have taken these steps because we are confident that our DPC and all the nucleo-type platforms will give us numerous opportunities to create drugs that change the way important diseases are treated, and at the same time create lasting value for our shareholders.

We have not only had our foot on the gas over the past few years, we have had it on the floor. Our lead programs ARC-520, ARC-AAT and ARC-521 are now at important points in their development, when substantial value inflections are possible. Pushing through those points is critical to us as a Company and we want to ensure that we have the capital for this, particularly during this time of uncertainty in the broader markets.

In order to keep our foot on the gas with these more mature programs we are easing up a bit on some of our earliest stage programs. We created a flexible cost structure that enables us to move quickly, but also to dial down spending on a program-by-program basis. And we're taking advantage of that now in order to fully restore HBV and AAT. All earlier programs continue to move forward, but some will just move at a slower pace for now. This is a good strategy and we are quite confident that there will be ample opportunities to fully fund these and other programs through various shareholder friendly methods.

So what do we have now and where is the gas? Today we reported total cash resources of $76.6 million at the end of fiscal 2016 first quarter. We expect this gives us sufficient liquidity to fund our programs as described above through at least 12 months from now. This is important because we have many important milestones we expect to reach within this window. With that overview, I would now like to turn the call over to Dr. Bruce Given, our COO and head of R&D. Bruce?

Thank you Chris, and good afternoon everyone. On our last call in December I highlighted some of the data that we presented on ARC-520 last quarter at our Analyst Day, at AASLD and at HEP DART.

There was a good amount of data that describes some new concepts and unappreciated biology that we discovered through our clinical studies and through a long-term study conducted in chimpanzees with chronic HBV. Specifically, patients have become e-antigen-negative and patients that receive chronic antiviral treatment with NUCs appear to have reduced cccDNA. Consequently, HBV DNA that has integrated into the host genome can become an important source of production for HBV surface antigen, or s-antigen in these patient populations.

We presented data showing that because of this there was a differential response to ARC-520 with respect to s-antigen in these various patient populations. Importantly, we demonstrated that log reductions with e-antigen and core-related antigen were similar across these different patient populations. And we would anticipate that the same would be true for preliminaries and the viral X-antigen as well.

In an unexpected surprise, we also presented data showing that in chimpanzees seven of nine animals that received multiple-dose treatment with ARC-520, showed signs indicative of immune reactivation. This occurred in all of the e-antigen-positive animals and half of the e-antigen-negative animals.

One of the chimps had a therapeutic viral flare and had large persistent reductions in s-antigen and viral DNA as far out as six months following discontinuation of all therapy and six months was the last time point measured. I'm not going to go through all the data but I want to review some key findings so that I could provide some context in how you should view the studies we have going on and those that are planned in the future. Before I do that let's quickly review the intended mechanism of ARC-520 treatment.

ARC-520 is designed to silence the production of all proteins produced by HBV. The virus produces multiple proteins in excess of what is needed to fully form viral particles, some of which are secreted into the bloodstream and some proteins remaining in hepatocytes. It is believed that many, if not all, of these proteins play a critical role in the viral lifecycle and allow the virus to evade immune control and clearance. The idea behind ARC-520 is that if you reduce the production of these proteins you may tip the scales, if you will, so that the immune system has a chance to control the virus and potentially get to a functional cure for patients.

As I mentioned in our chimpanzee study, we saw signs that the immune system was reawakening in all the e-antigen-positive animals and half the e-antigen-negative animals. This suggested ARC-520 may be doing exactly what it's designed to do. So what does this mean for the design of our clinical program?

We see patients as being in one of four main groups based on their e-antigen status and whether they have received chronic therapy with NUCs. These are: NUC-naive e-antigen-positive; NUC-naive e-antigen-negative; NUC-experienced e-antigen-positive; and NUC-experienced e-antigen-negative. Our clinical program is enrolling patients from all of these quadrants. Based solely on s-antigen reduction, the first quadrant may be predicted to see the highest level of activity. However, our chimpanzee study suggests that ARC-520 is hitting the virus at multiple points beyond just s-antigen production which may be relevant to reawakening the immune system.

We intend to enroll over 200 patients this year across the various global, multiple-dose and combination Phase-2b studies. These are the 2001 open-label extension, 2002, 2003, 2004, and 2008 which that study is also called MONARCH, you may know it better by that name. These are enrolling and dosing as we speak and we're pleased with the pace of patient accrual so far. Including the Phase-1 studies, ARC-520 has now been administered to well over 100 people to date. It continues to be well-tolerated across all studies.

The most common in the AEs reported in subjects completing treatment were upper respiratory tract infection and headache. For ARC-521, the second drug in our HBV portfolio, we are working on completing GLP toxicology studies to support a regulatory submission to begin the first demand study. Our goal is to have an accelerated Phase 1, 2 development path that can get us to multiple-dose data in patients rather quickly. We have some ideas about a trial design that would accomplish this which we will share more about when then study gets started.

We continue to plan for a late second-quarter 2016 regulatory submission time. ARC-AAT is our drug candidate for the treatment of liver disease associated with a rare genetic disorder called alpha-1 antitrypsin deficiency, which we abbreviate as AATD. As Chris mentioned earlier, we are conducting a Phase-1 single ascending dose study in both healthy volunteers and patients. Part A of the study in healthy volunteers has dosed up to five migs per kig and we are not precluded from going higher. It is likely that part A in healthy volunteers will complete before part B in patients, so we may report top-line data from part A later in the year and prior to part B.

The timing of this release will depend on the number of dose levels that we decide to study. While the Phase-1 continues, we're also preparing to begin a pilot Phase-2a multiple-dose study. This study will look at the effect of circulating levels of AAT after multiple doses of ARC-AAT. But very importantly, we also intend to take biopsies to determine the effect at the hepatocytes level. This study should also get underway this year.

So with all the studies going, on our clinical team is very busy. As you can see, we have several studies that have potentially yield interesting data throughout 2016 and beyond. We are looking to transform the treatment of both HBV and the liver disease associated with AATD. Thus making a critical difference in patients' lives which is when being a drug developer is most rewarding. With that I'd like to turn the call over to Ken Myszkowski, Arrowhead's Chief Financial Officer. Ken?

Thanks Bruce and good afternoon everyone. As we reported today, our net loss for the three months ended December 31, 2015 was $19.3 million or $0.32 per share based on 59.5 million weighted average shares outstanding. This compares with a net loss of $22.6 million or $0.41 per share based on 54.7 million weighted average shares outstanding for the three months ended December 31, 2014.

Total operating expenses for the three months ended December 31, 2015, were $19.4 million compared to $25.3 million for the three months ended December 31, 2014. Net cash used in operating activities during the three months ended December 31, 2015, was $21.2 million compared with $24.2 million during the three months ended December 31, 2014. A change of $3.1 million, primarily due to reduced expenses associated with the drug manufacturing campaign to support our Phase-2b studies for ARC-520.

The manufacturing campaign for this clinical trial for ARC-520 is largely complete. However, as other medical candidates are nominated and other clinical trials advance, further expenditures will be incurred. Turning to our balance sheet, our cash and investments of cash were $76.6 million at December 31, 2015. Compared with $98.6 million in September 30, 2015.

The decrease in our cash and investments balance is primarily related to the $21.1 million cash used in operating activities. Our common shares outstanding at December 31, 2015 were 59.6 million and would be 62.3 million assuming conversion of the preferred shares outstanding at December 31, 2015. With that brief overview I'll turn the call back to Chris.

Thanks, Ken. These are challenging times in the financial markets. While it's easy to say and somewhat more difficult to do, we try not to use the day-to-day movements in the stock price as an indication of the true fundamental value we are creating. We focus on how far we've come in the last year and how far we will go in 2016. And when we look beyond the next 12 months to the next few years, we see dramatic potential for Arrowhead as our mid-stage pipeline matures and our early and pre-clinical stage pipeline start to show clinical proof of concept across multiple disease areas.

Just like every market cycle before this, this cycle too will pass. Innovative drugs like the ones we're developing at Arrowhead will always have great value. At the beginning of the call I mentioned four things that we believe are true and that will enable us to build value through a difficult market. Let's take another look at those now.

Does our technology work? Yes. Data in chimps indicate that ARC-520 and ARC-521 are capable of deep-target knockdown. Substantial clinical data with ARC-520 and ARC-AAT indicate that deep knockdown translates well from non-human primates to humans. Between ARC-520 and ARC-AAT we have seen DPC exposure in well over 150 people and the safety profile has been promising. In fact, they do not believe there's an RNAi delivery platform with a cleaner safety profile in humans than ours.

Are we working to solve a real medical problems? Yes. Between 350 million and 400 million people worldwide or approximately 1 in 20 people on the planet have chronic HBV infection and there is no cure. Approximately 100,000 people in the US and a similar proportion in Europe suffer from AATD and there is no treatment for liver disease associated with this.

Do we have capital? Yes. We have enough to run through at least the next 12 months while pushing our lead programs as fast as possible and continuing to work on our pipeline. Do we have access to additional capital? Yes, through a number of sources.

We have clearly demonstrated ARC-520 and ARC-AAT are active and well-tolerated in humans. And 2016 is full of value inflection points. These include: treating over 200 patients in multiple Phase-2 studies of ARC-520, some of which are open label; the introduction of ARC-521 into the clinic and expect a quick progression of Phase 1, 2 studies; the release of ARC-AAT healthy volunteer and patient data; and progression into Phase-2 studies. These are important for rapid value creation and therefore important to investors.

We're also at a point in development and platform validation that we are an increasingly attractive partner to larger companies. Many companies looking for exposure to the areas we are addressing with current candidates would be interested in our ongoing programs. Similarly, companies looking to address areas in which we do not have active programs will find Arrowhead an attractive discovery and development partner.

We have broad IP coverage through internal development, the Novartis transaction and the Rose transaction. We have a delivery platform that has demonstrated extremely deep-target knockdown in humans and arguably the best safety profile in the field. We are capable of addressing both hepatic and extrahepatic targets, we are capable of both IV and subcutaneous administration and we have demonstrated very rapid development time lines.

As we have mentioned, 2016 is set up to be an exciting year for across multiple fronts. I think we will start to see answers to questions that have vexed medicine for some time now, and we look forward to regular communication with the street. I think 2016 is a big year for us and I also think we will surprise some people. I would now like to open the call to questions. Operator?

(Operator Instructions)

Michael Yee, RBC Capital.

Hey guys, good afternoon. I liked your comments Chris, that was refreshing about the capital markets. Three quick ones.

One is, you have all these ongoing studies going on, the 2000 series and then MONARCH. Can you be specific about where we are in enrollment specifically in the NUC naive e-positive patients, which I think is the most important group? What point would be a trigger point to release data? Is that like having a conversion, something like that? Talk a little bit about that and what you would want to see to disclose some data.

Second question is, in terms of the collaboration which you've mentioned a few times here, are we talking about combining, you're looking for a partner with something like an oral small molecule, you want to partner with that and want collaboration, is that what we should be thinking about? And then third for the financial side, I think you burned around $20 million I think give or take this quarter. If you have $77 million in cash, help me with that math to make it through 12 months or I should be taking expenses down which seems odd if you are running a large trial. So help me walk through that math and how you get to the 12 months. Thanks.

Thanks, Michael. So tell me if I forget anything. First one with respect to progress in MONARCH. I don't want to go down the rabbit hole of providing blow-by-blow updates on all these studies. Here's what I can tell you though.

I agree with you that the NUC naive e-positive cohorts are quite interesting. We are actively enrolling patients right now and so we are in those studies, we are seeing patients, we're recruiting additional patients, those are ongoing.

How many patients we have dosed, again, I don't want to, I think it's a bad precedent for us to start talking about that on a real-time basis. Rest assured that we have a number of sites open and we are actively recruiting that study.

Although I will say, while I think that's a very attractive quadrant if you will, I am really interested to see the e-negatives and also the NUC experience patients as well. Remember with those chimps, we saw seven of nine chimps experience some immune reactivation. Or at least signs of immune reactivation.

All of the e-positive chimps showed signs of immune reactivation but half of the e-negative chimps also showed signs of immune reactivation. So I am bullish that 520 will not only be NUC naive e-positive patients but also other patient populations.

Just to be clear on this first one to get a clear answer. If you look at the timelines, months of dosing and then follow-up but that could go out for a while. In terms of getting data this year on any of these cohorts, would you want to see seroconversion to announce data, is that something that you would trigger an announcement if you're seeing a real-time conversion for example?

The short answer, I don't know the answer to that. We don't have a set criteria for what would trigger an announcement to be honest with you. The studies that are placebo-controlled will be difficult to have data from those this year. I think there's a better likelihood of having data in those open label studies, the 2001 extension where I think we've got something like 55 possible patients who could enroll in that, and then of course MONARCH.

Which would be a larger number.

Those are open label and so we have good flexibility on when and how we present data. I can't give you a hard and fast rule as to what would trigger an announcement. We will just have to see what they look like when they come in. But again, we see them almost real-time and so stay tuned. We could certainly have data this year as those studies rollout.

Okay, and then collaboration?

So collaboration. Sure we'd be interested in collaborating on an oral small molecule, but we would also be interested in collaborating on other modes of administration and other types of drugs. As Bruce has talked about in the past, we view MONARCH as our test kitchen and right now the only ingredients in that test kitchen are ARC-520 interferon and NUCs. And so the first cohorts are designed to look at combinations of those.

Keep in mind we're also looking at monotherapy because again, I think that the 520 is going to be a powerful drug in and of itself. But in terms of combinations, that's all we've got. Now there other experimental drugs that we are talking to other people about, including either cohort or two of MONARCH and oral would be fine, but also IV or sub-q or what have you would be okay with us. We just want to find a recipe that gives us a cure consistently and then blow that study out.

You said you feel confident about a collaboration this year. You have an active dialogue and feel good. Okay. And then third on the financials.

So the financials are going to be bumpy, because what we've said in the past is that we spend now closer to $3 million a month on our base burn, this is all internal R&D, let's call it corporate costs, and then layer on top of that clinical cost. Those clinical costs are bumpy because they will include the manufacturing runs, they will include set up costs for sites et cetera. So, yes, the trend will be higher as we go deeper into the studies and as we bring in more space in the clinic. But on a quarter-by-quarter, on a month-by-month basis those numbers will differ.

Okay. Thanks.

And Bruce, do you want to add anything to that?

Yes. I would just say that one of the things that Chris did imply is that we could have this year, if we kept the pedal to the floor on our earlier stage products, there would be manufacturing costs and toxicology costs and things of that sort which can be quite substantial. And we have elected to, as Chris said, take the foot off the gas a little bit on those and slow some of those costs down and I think that's the biggest element in allowing us to feel comfortable that we can go 12 months.

Okay. Thanks.

Aan Yang, Jefferies.

Thanks very much. I just want to clarify the potential collaboration for this year for ARC-520. Does that mean a partnership for like a development and commercialization partnership, or kind of a clinical program collaboration?

Thanks, I'm glad you asked that. It's really, what we are talking about in the near term, is just a clinical collaboration. What we have is, we think is something of great value to potential partners.

We are in now multiple phase 2 studies with a drug that clearly knocks down the whole HBV genome that is well-tolerated. We think it's going to be quite attractive to those companies with experimental agents to combine with ours.

I think it's too early to start talking about partnership. I think that it's better for us, better for our shareholders, to get into these studies together, to let those companies better understand our drug to see if our drug works well with theirs, and then we can always talk about a partnership, a larger partnership after that. But I think the way to do that is really to do it sequentially.

Okay. Given that private Hep B company Novira got acquired by J&J, are you seeing interest from potential partners in your program? Is that the reason why you are saying that's it's not, this is not the right time, is it because you are going to create more value before you form a partnership? I'm trying to gauge the interest and levels you are receiving from a potential partnership down the road.

Right. Let me see two things on that. Number one, big Pharma has clearly woken up to this opportunity. When we first started developing ARC-520, we were out there alone banging the drum that HBV is the next HCV. We truly believe there was a mass of unmet medical need and that and if somebody could copy this disease there was going to be an awful lot of value to create.

We were alone then, we are not alone now. Big Pharma has woken to that, it's not just J&J, but it's really all big Pharma.

We talk to these people on a regular basis, we see an awful lot of interest in finding a consistent function cure and I just think that we are the closest thing to that at this point. We will see if we can make it there, but as I said in my prepared statements, I think that if there's going to be a breakthrough in HBV this year, it's going to come from us, just by virtue of our mode of action and just by virtue of deep we are in the clinic.

Now with respect to when is the right time to do a partnership if we were to do a partnership, I think there's still an awful lot of value to create before one would want to have those deep discussions. I think that we need to get into these 200-plus patients with various regimens this year and start to see what we're going to see.

Thanks, and in the earlier portion of your prepared remark you said that you have access to the capital, now you have about 12 months cash run rate. Can you provide us a little more details on what you mean by access to capital?

Sure, I think we have access to a variety of capital sources. As I mentioned, we have something that is of value here, and I think that in 2016 we have many inflection points where we have the potential of showing large increases in value, and these are always interesting to investors. But even beyond that we are now to a point where I think we could be of interest to larger companies in terms of partnerships, not only for our current candidates but for new novel candidates, if you will.

We have largely crossed and we continue to cross, I guess the bridge of platform validation. We have been now in, gosh well over 100 people with our first DPC delivery construct. And the safety profile is quite good and our activity is quite good. So I think we have answered in a lot of questions in company's minds and so now I think that we've got access to that capital from partnerships as well.

My point was this, that we have made an awful lot of progress in the last few years and I'm quite comfortable that we will have access to capital to continue to grow this Company. I would like it better if our stock price was higher at this point, but I'm comfortable that there is an awful lot of pent-up value that we've created that could be expressed later in the year.

Thank you.

Ted Tenthoff Piper Jaffray.

Great, thank you very much. Thanks for the update. I wanted to make sure I heard something correctly. Bruce, did you say you would anticipate registering or seeking registration for ARC-520 in the 2018 timeframe? Did I hear that correctly?

No.

Okay.

I don't think I said anything about registration and certainly nothing about a timeframe. No I don't think so Ted.

Okay good, I just wanted to make sure. I guess a lot of data to come out of the clinical studies this year, I know that you are pushing out some of the earlier stage programs. Does this mean we should still anticipate an IND this year or would that slip into 2017 as well?

That's a great question Ted, I don't have a good answer for you at that point. We are, as I mentioned, we are certainly not stopping our progress in any program, in fact we are continuing to move rapidly just a little bit less rapidly if you will, than two months ago. Than a month ago even.

So it's not clear how much this is going to change those kind of time frames. Stay tuned on that, we will let you know as we continue to build those programs out.

We certainly expect ARC-521 to go, so we'll have an IND equivalent for ARC-521, our announced expectation is to have that submission before midyear, right around midyear. But on this side of the halfway point. What I think your question is aimed at and what Chris was saying is that the next one after 521 at this point would be somewhat dependent on something breaking in the way of capital one way or the other.

You know I think it's probably fair to say that if we were sitting on $1 billion of cash right now I don't think 520 or 521 or AAT would move any faster. Those are fully resourced and our foot is on the floor with those programs.

Excellent. Good. All right thanks guys.

(Operator Instructions)

James Gash, Private Investor.

Hello.

Hi, James.

You mentioned we are not alone in HBV. I believe the same is true for the AATD. Could you discuss the orphan drug designation, for instance how the seven-year exclusivity might apply.

That's a great question thank you. Bruce, do you want to address that?

So in the US, the orphan drug designation gives you exclusivity for the chemical entity itself. So we would have a minimum of seven years exclusivity, now, hopefully we would reach the market such that we would have a longer patent life than the seven year minimum. But the other advantage for orphan drugs is it just gives you better access to the agency, it reduces fees associated with the drug development process at the level of the agency, so there are advantages there as well. But hopefully we'll have patent coverage that stretches beyond seven years exclusivity anyway.

So it's not really exclusivity say for the only RNAi drug?

It is not an exclusivity for the indication. Europe is a different story. Europe there can be exclusivity for the indication, although sometimes the indications gets a little bit sliced and diced. But in Europe you can see exclusivity for the indication.

Europe you also get a cut with fees from orphan exclusivity and in Europe, orphan exclusivity actually for 10 years with the possibility of picking up an extra year if one gets another indication for the drug. And also in both in the US and Europe you can get some extension for pediatric approvals as well. Orphan drugs in the US and Europe are a bit different.

So first to market in Europe might actually constitute a real advantage?

Yes. First to market in Europe in orphan drugs is important.

Okay. Thank you.

Mark Parker, Private Investor.

Thank you very much. Good job. Want to congratulate you on the science.

I think my question on additional capital has been answered. But with respect to that, can you expand a little bit on what your strategies are for expanding that capital? I know a lot of us out here are planning with our own money and we're certainly attuned to the interest.

It's certainly been unfortunate the stock price behavior the last year, but I think I can speak for many of us that you have done a great job with the science. We need to do a little more with the capital markets. Thank you.

Sure. There's not much I can say. Here's what I can tell you. We're focused on building these programs out and pushing 520, 521 and AAT through the clinic as quickly as we can. As we talked about, I think that 2016 is full of important milestones that are real value drivers for us.

So I think that our access to capital and our appetite for taking capital changes dramatically as we hit some of those milestones. So we feel quite comfortable, we've got plenty of runway to hit a lot of those milestones.

From a capital market standpoint we feel quite good. We feel confident. It's just not something I lose sleep about at this point.

On the partnership side as I mentioned, we have now matured to a point where I think that we can be a true credible partner with a larger Company. Not just for the candidates that we have in development right now but for novel candidates, some that they may be interested in that we have the ability to help them get into.

We've always thought that we would get there and we have always been quite confident in our technology, but now that we have got good proof of concept in humans, a good safety profile in humans. As I mentioned, I think we've got the record in single dose knockdown using RNAi in humans. I think that we have the cleanest safety profile in the field in humans.

I think these sorts of things and our flexibility with respect to delivery in terms of hepatic versus extrahepatic, in terms of IV versus sub-q. I think all of these things make us comfortable that we can credibly compete for non-diluted capital partnerships.

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

Thank you everyone for tuning in today, and we look forward to an exciting 2016. We will talk to you later.

Ladies and gentlemen, thank you for participating in today's conference. Everyone have a great day.