Arrowhead Pharmaceuticals Inc (ARWR) 2017 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the Arrowhead Pharmaceuticals conference call.

(Operator Instructions)

I will now hand the conference 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 2017 second quarter ended March 31, 2017.

With us today from management are President and CEO, Dr. Christopher 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 pipeline; and Ken Myszkowski, our Chief Financial Officer, who will give a review of the financials.

Before we begin, I would like to remind you that comments made during today's call 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 the Arrowhead's goals, plans and strategies, are forward-looking statements.

These include statements regarding our expectations around the development, safety and efficacy of our drug candidates, projected cash runway and expected future development activities.

These statements represent management's current expectations and are inherently uncertain.

Thus, actual results may differ materially.

Arrowhead disclaims any intent and undertakes no duty to update any of the forward-looking statement 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 subsequent quarterly reports on Form 10-Q for additional matters to be considered in this regard, including risks and other considerations that could cause actual results to vary from the presented expected results expressed in today's call.

With that said, I would like to turn the call over to Chris Anzalone, President and CEO of the company.

Chris?

Thanks, Vince.

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

We had a highly productive quarter and continue to push our cardiovascular partnership with Amgen forward rapidly.

We're also advancing our own pipeline of new RNAi-based medicines toward the clinic.

2017 is an important building year for Arrowhead, and we continue to be laser focused on execution.

We simply must be fast and we must be good.

That means hitting aggressive time lines and performance goals on both research and clinical development fronts and demonstrating that we have a fully enabled RNAi therapeutics platform.

Broadly speaking that platform includes the following; one, a new subcutaneous, or subcu, administered liver-targeted delivery system.

This is a family of proprietary single-molecule structures where clusters of liver trophic N-acetylgalactosamine or NAG ligands are conjugated directly to highly modified RNAi triggers; two, our extrahepatic delivery platform, which includes multiple designs and structures depending upon the type of extrahepatic tissue that is being targeted; and three, various RNAi stabilization chemistries and a set of sophisticated design processes that enable rapid development and optimization of RNAi triggers that can achieve deep and durable gene silencing without the need for an active endosomal escape component, such as our prior DPC delivery system.

This last component is more than just proprietary technologies.

It is also about a team that has demonstrated its ability to rapidly innovate and meet aggressive time lines.

This was certainly true with discovery and development programs of prior generation candidates ARC-520, ARC-521 and ARC-AAT, and we have only gotten better.

It was impressive how quickly our team can now go from idea to screening to optimization and ultimately, to lead candidate selection.

And our program management, regulatory and clinical development teams can take the next steps of designing and executing efficient manufacturing campaigns, GLP toxicology studies, regulatory submissions and clinical studies.

We appreciate that much of our current work is happening behind the scenes with little visibility to those outside the company.

Prior to discontinuing our clinical programs that utilize our DPC EX1 delivery vehicle last year, we are accustomed to having multiple clinical candidates that would readout at various times.

So without current near-term clinical readouts, how do we demonstrate to you, our shareholders and analysts, all the breakthrough work going on internally at Arrowhead.

We think the best way to do this is through an Analyst R&D Day, during which we can provide a comprehensive view into what we have accomplished and a clinical time line for future work.

Our current plan for the event is to discuss the platform and our development process generally and present preclinical data for multiple pipeline products.

We also intend to provide some background information on the disease areas and give specific guidance about when we anticipate our clinical programs will begin.

We will provide more information when the date is finalized, but expect this Analyst R&D Day to occur in September.

We have substantial data even now.

And at that point, we will indeed have much to discuss across multiple programs.

That may seem a ways off, but it's important to note that for hepatitis B and for alpha-1 liver disease, we are not starting from scratch.

Indeed, our extensive prior experience gives us confidence in the potential of our next-generation candidates ARO-HBV and ARO-AAT.

First, we believe there is now clinical validation for the use of RNAi against those 2 diseases.

Providing an important proof-of-concept that companies typically do not have at this stage of development.

Second, our preclinical work in both diseases, in particularly, in HBV, give us a level of understanding of the diseases and RNAi-based interventions that will inform our clinical programs and represent real, competitive and strategic advantages.

Third, we have extensive experience in sophisticated multinational clinical studies in both areas and treated nearly 350 people across 17 countries between our prior HBV and AAT programs.

We have deep relationships with the relevant investigators, experts and foundations, and we are involved in the appropriate endpoint committees.

This level of expertise and engagement is invaluable and will enable us to move quickly and efficiently once we reenter the clinic.

Finally and more broadly, RNAi is increasingly seen as a reliable biological mechanism.

We believe that if you can get a potent RNAi trigger to the right issue type and the right intracellular space in humans, then you can reasonably expect target gene knockdown that is, for the most part, consistent with that seen in rodent and primate studies.

That has generally been our experience with ARC-520, ARC-521 and ARC-AAT and consistent with the results from others in the field.

We are eager to get candidates that utilize our next-generation subcu format into the clinic to confirm this same relationship holds with our new platform.

We hope to essentially pick up where we left off with HBV and alpha-1 liver disease and move forward on other diseases rapidly and with confidence.

With that overview, I'd now like to turn the call over to Dr. Bruce Given, Arrowhead's COO and Head of R&D, to discuss our pipeline.

Bruce?

Thank you.

Good afternoon, everyone.

As Chris mentioned, we have a great deal of experience with HBV and alpha-1 liver disease.

From work that we did with ARC-520, ARC-521 and ARC-AAT, at the recent EASL International Liver Conference, we presented more of our clinical data from all 3 programs.

We believe that these clinical data, collectively with additional nonclinical data that we have reported on previously, provide validation for the use of RNAi against HBV and alpha-1 liver disease.

It was interesting to see how well received the data were by many of the liver experts in attendance.

We have shown that an RNAi therapeutic can do exactly what it is designed to do, which is knockdown the production and release the specific proteins involved with respective diseases.

This is important proof-of-concept that supports the continued advancement of ARO-HBV and ARO-AAT, Arrowhead's follow-on product candidates that utilize the company's next-generation subcutaneous format.

I would like to give a bit of detail about the specific data that was presented, and I'll start with HBV.

For ARC-520, we presented multiple-dose data for the Heparc-2001 open-label extension study.

In this study, treatment naive chronic HBV patients who previously received a single IV dose of 4 mgs per kg ARC-520 and started daily entecavir in the same day were eligible to roll over into a long-term extension.

8 patients, 5 e-antigen negative and 3 e-antigen positive were enrolled to receive 4 mgs per kg ARC-520 once every 4 weeks, while continuing their daily entecavir.

Knockdown of viral DNA, s-antigen correlated antigen and e-antigen in e-antigen positive patients was measured at regular intervals.

In naive, e-antigen positive patients, where we now know to expect the best results with ARC-520, multi-dose treatment with ARC-520 further reduced s-antigen levels beyond those seen with a single dose.

The maximum reduction observed was 3.1 logs with the mean maximum reduction of 2.2 logs.

As expected, based on our groundbreaking chimpanzee work, e-antigen negative patients showed lower reductions in s-antigen.

The maximum reduction observed was 1.4 logs with the mean maximum reduction of 0.7 logs.

The responses in both of these groups are quite consistent with findings from our chimpanzee study, demonstrating that a higher fraction of s-antigen was produced by integrated DNA as opposed to cccDNA in those who are negative for e-antigen.

These findings led us to develop ARC-521 to address patients that were less cccDNA driven.

It included an RNAi trigger, that was designed to be active against s-antigen produced by integrated DNA.

And thus, we predicted that ARC-521 would potentially show higher levels of s-antigen reduction in e-antigen negative patients.

The data presented at EASL from a Phase I/II study of ARC-521, although incomplete due to the discontinuation of the clinical program, were consistent with this prediction and provide clinical validation for the need to address surface antigen from both sources.

These as well as other findings were important and help us in the planning and development of ARO-HBV.

As a part of EASL, in its satellite conferences, HBV remains a growing focus.

It was rewarding to see the centrality of Arrowhead's work with ARC-520 in many presentations and how the field has so widely embraced the concepts regarding the importance of integrated DNA.

It has caused the entire field to rethink the disease and consider the implications of these findings for future regulatory approval endpoints.

This leadership by Arrowhead continues to provide us with broad access to HBV experts.

Turning to the liver disease associated with alpha-1 antitrypsin deficiency.

We also presented data from a Phase I, Ia/Ib study of ARC-AAT at EASL.

In this study, 54 healthy volunteers and 11 patients with AATD were enrolled.

Healthy volunteers received escalating doses of ARC-AAT from 0.38 to 8 mgs per kg, while patients received 2 or 4 mgs per kg prior to discontinuation of the program.

At the highest dose a maximum reduction of serum AAT of 89.8% was observed, which we believe represents deep suppression of the liver produced AAT protein.

Recall that we believe around 10% of production is from outside the liver.

At equivalent doses, patients with AATD and healthy volunteers responded similarly in terms of depth and duration of AAT protein knockdown.

These results were presented in a heavily attended late-breaker session at EASL.

And there was enthusiasm amongst this audience to see our return to clinical testing.

We believe these results, together with those from nonclinical studies presented at AASLD last fall that showed that treatment with ARC-AAT over time may improve liver health and prevent further damage, provides solid proof-of-concept for the use of a RNAi therapeutic against alpha-1 liver disease.

We continue to use these learnings as we advance our ARO-AAT towards the clinic.

Now I wanted to briefly mention the ongoing cardiovascular collaboration we have with Amgen and specifically, the ARO-LPA program.

If you recall, that was the first publicly disclosed program to use our new subcu delivery.

While we cannot give guidance on program timing, we can say that the pace of the collaboration has been rapid, and Amgen has been a wonderful partner to work with.

We see great potential there as well as in the undisclosed target that we are working on with them.

In addition to ARO-HBV, ARO-AAT and ARO-LPA, there are several other programs that we are working on using both our liver-targeted subcu technologies and our extrahepatic delivery.

We expect to provide more color on some of these programs later this year as well as the technology platforms that enable them.

All of us in the R&D organization are excited about and proud of the work we're doing.

We are enjoying another burst of creativity and productivity internally.

We see Arrowhead as a leader in the science of HBV, alpha-1 liver disease and RNAi in general, and we are very eager to share the great progress that our colleagues are making every day.

With that overview, 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 3 months ended March 31, 2017, was $6 million or $0.08 per share based on 74.6 million weighted average shares outstanding.

This compares with a net loss of $20.8 million or $0.35 per share based on 59.8 million weighted average shares outstanding for the 3 months ended March 31, 2016.

Revenue for the 3 months ended March 31, 2017 was $9 million compared to $44,000 for the 3 months ended March 31, 2016.

This increase was driven by the upfront payments received from our collaboration agreements with Amgen.

And these payments will be recognized as revenue over the next several quarters.

Total operating expenses for the 3 months ended March 31, 2017, were $15.1 million compared to $21.3 million for the 3 months ended March 31, 2016.

The decrease is driven by the discontinuation of the clinical trials related to our previous clinical candidates.

Net cash used by operating activities during the 3 months ended March 31, 2017 was $14.3 million compared with net cash used of $14.8 million during the 3 months ended March 31, 2016.

Cash usage was consistent between periods, and we continue to -- as we continue to close out our previous clinical trials and ramp up our discovery efforts.

Turning to our balance sheet.

Our cash and short-term investments combined totaled $86.6 million at March 31, 2017, compared to cash of $85.4 million at September 30, 2016.

We invested $24.9 million in short-term corporate bonds that mature within the next 12 months.

Our total cash in investments balance was comparable to our September 30, 2016 cash balance as the $30 million upfront payment received from Amgen offset cash used for operations.

Our common shares outstanding at March 31, 2017 was 74.8 million.

No preferred shares were outstanding.

With that brief overview, I'll turn the call back to Chris.

Thanks, Ken.

While we would like to be back in the clinic right now with our next-generation subcu and extrahepatic platforms, we know that the work we're doing is laying a foundation for a stronger Arrowhead in the future.

We think the subcu route is more commercially viable than IV for most diseases and critically important for certain areas like cardiovascular disease.

In addition, the depth and versatility of our RNAi technologies enable us to address conditions across therapeutic areas and pursue disease targets that are not otherwise accessible to other modalities.

So in the long run, we believe we are well positioned to create optimal RNAi therapeutics to help patients with diseases without adequate treatment options.

I want thank all of you for joining us today, and I look forward to providing more information about the date and content of our Analyst R&D Day as we get closer to that time.

I would now like to open the call to your questions.

Operator?

(Operator Instructions) Our first question is from Katherine Xu with William Blair.

I'm just wondering with ARO-HBV and ARO-AAT, are the triggers using these new candidates the same sequence and -- as in the ARC's programs products?

And also, can you just compare and contrast sequence, chemistry and things like that, if possible?

Bruce, you want to address that?

Yes.

I could take that on.

So it's possible that -- and perhaps one of the sequences in ARO-HBV will be similar to ARC-520, but at least one will not.

And as far as ARO-AAT, that's a different sequence than was used in ARC-AAT.

The demand on sequences in subcu is much higher than the demand on sequences when one uses arrow -- when one used endosomal escape.

So we really spend a lot of effort in the subcutaneous program to find the truly best sequence and the right optimization of that sequence.

And that kind of feeds into your second question, Katherine, which is to say that the amount of modification in the RNA that was used in the EX1 programs, ARC-520, ARC-521 and ARC-AAT, was quite light in comparison to the modification work that goes into subcutaneous dosing with these single molecule triggers that don't have any endosomal escape component.

So the chemistry is more advanced in our subcu program, I think is the best way to say it.

And more sophisticated than was required previously with the IV programs.

Our next question comes from Kyung Yang with Jefferies.

This is Carmen on for Kyung.

So would you be interested in pursuing additional partnerships similar to the one you have with Amgen?

And have you received any inbound interest in a partnership like this?

Thanks very much.

Sure, additional partnerships like the Amgen deal are a key component of our strategic plan, and we are hopeful that we can execute additional partnerships like that.

And yes, we are -- we have had good discussions with other companies about new partnerships.

And so we are optimistic that we can enter into additional partnerships.

Of course, we have no control over timing of those.

And so we can't give any guidance on when those may be, but we are certainly hopeful that we can enter into similar type partnerships.

And frankly, we have -- I think we have worked quite well with Amgen so far, and I think that we have proven ourselves a good partner.

I'd be quite comfortable with doing that multiple times.

(Operator Instructions) Our next question comes from Madhu Kumar with Chardan.

This is Kristen Kluska on behalf of Madhu.

Two questions.

With regards to the HBV program, what have you learned from ARC-520 and ARC-521 about effective surface antigen suppressants necessary to move the HBV RNAi drug into pivotal trial?

Bruce, you want to tackle that somewhat less than 47 hours?

Yes.

Well, I think one of the interesting things we learned from ARC-520 and ARC-521 is with good triggers and with care to understand the implications of integrated DNA derived surface antigen, one can get quite deep knockdown.

And the other thing that we saw, Kristen, was that there were signs in the way of ALT increases that the immune system showed some reawakening, if you will, which is a very important piece of the puzzle since the goal in HBV is not to directly cure the virus the way you do with HCV.

The goal with HBV is to actually allow the host's immune system to get back on top of the virus and get control of it.

So the fact that we showed that if you can get multi-log reduction in surface antigen, you can get the immune system to show signs of life, that was very positive and instructive.

The question of what people are going to require to go into Phase III is a very interesting one.

And you may or may not be aware, but they now are couple of important efforts, at least a couple of very important efforts involving industry academia and the regulatory agencies, principally the FDA, to understand what the proper endpoints are in drug development going forward with HBV.

And really trying to ask this question, what are the right endpoints for Phase II versus what are the right endpoints in Phase III.

And also very importantly, recognizing that we're likely going to be using combination therapies in HBV just like we do currently in HCV or HIV.

Those -- all of those efforts are still -- they're progressing nicely, but they have not come to any sort of completion at this point.

We're happy, we have a seated table there.

Actually, I'm on the steering committees of those efforts.

So I'm very close to this particular question.

So the short answer is, no one at this point, I think, can say with certainty what you're going to have to show in Phase II to get into Phase III.

But I do think that people are going to want to see signs that the host immune system is coming into the picture, because we all think that's what's going to be necessary, ultimately, to get functional cure, which at this point seems to be the consensus endpoint that's expected to be required for the approval of this next wave of drugs, which is something we actually predicted back in 2011 or 2012.

That seems to be where the field is going.

That's very helpful.

So what levels of suppression do you think are necessary?

And over what length of treatment time or in posttreatment follow-up?

Well, we've seen signs of the immune system waking up with as little as a log and a half of reduction, for instance, in s-antigen and in individual patients and for that matter, in chimpanzees as well.

So it feels like it's going to be a patient-by-patient sort of question that needs to be answered in some ways, but it feels like a log's not going to be enough.

It's probably going to need to be more than that in a general way.

We got as much as 3 logs, which was really -- has, again, pushed the boundaries in what RNAi can do in the industry.

And it feels like we're going to want multi-log reductions probably to really play the right role in a significant number of patients.

And keep in mind, that we're not only talking about s-antigen reductions.

We think that's important, but we think that this is a complicated virus.

And the fact that we are also engineered 521, 520 and ARO-HBV have all been engineered to knockout that entire virus, including s-antigen and others.

We think that's all important.

We think that's all part of reaching the cure.

So I think the old view of looking at reducing only s-antigen is probably less likely.

I think it's probably more important that we need to have the sort of PAN, protein response.

Yes, that's a very important point.

Thank you.

And I'm showing no further questions.

I would now like to turn the call back to Chris Anzalone for any further remarks.

Thanks very much for joining us today, and we look forward to seeing you in September.

Ladies and gentlemen, thank you for participating in today's conference.

You may all disconnect.

Everyone, have a great day.