Arrowhead Pharmaceuticals Inc (ARWR) 2022 Q4 法說會逐字稿

Ladies and gentlemen, welcome to 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.

Thank you, Justin. Good afternoon, everyone, and thank you for joining us today to discuss Arrowhead's results for its fiscal 2022 fiscal year ended December (sic) [September] 30, 2022. With us today from management are President and CEO, Dr. Christopher Anzalone, who will provide an overview of the quarter; Dr. Javier San Martin, our Chief Medical Officer, who will provide an update on our mid- and later-stage clinical pipeline; Dr. James Hamilton, our Senior Vice President of Discovery and Translational Medicine, who will provide an update on our earlier stage programs; and Ken Myszkowski, our Chief Financial Officer, who will give a review of the financials.

In addition, Tracie Oliver, our Chief Commercial Officer; and Patrick O'Brien, our Chief Operating Officer and General Counsel, will both be available during the Q&A portion of the call.

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 are forward-looking statements and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements.

For further details concerning these risks and uncertainties, please refer to our SEC filings including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q.

With that said, I'd 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. Quickly, Vince accidently misspoke and he said that our fiscal fourth quarter ended December 30, what he meant was September 30 2020 -- 2022. Our fourth fiscal quarter and period since our last call has been highly productive. We've seen clear progress across our large and balanced pipeline, large because it now includes 12 drug candidates in clinical trials and balanced because it spans in multiple therapeutic areas and includes 6 partnered programs and 6 that are wholly owned.

It is a good representation of that which makes us different. We are a company built on an increasingly validated technological platform applied to a large number of varied diseases across multiple organ systems where development is uncommonly rapid from idea to the patients in need, and we use targeted disciplined partnering to help finance development of our wholly owned drugs. This is who we are, and these factors are not new. What is new is the growing sense of clarity we are achieving.

I think that this recurring -- I think that this is a recurring theme of this update. We have increased clarity as to the makeup of our multiple Phase III programs, increased clarity as to how we intend to use our late-stage drug candidates in different patient populations, increased clarity as to when we expect proof of concept from our earlier stage programs, increased clarity as to where we plan to go next with the expansion of our platforms into new cell types, increased clarity as to how large we think our pipeline of clinical candidates will be over the next few years and increased clarity about how we intend to finance our growing pipeline.

Let's touch on some of these. First, we expect to report on progress for fazirsiran, our AAT program, partnered with Takeda in the near term. We would like to report top line data from the Phase II SEQUOIA study. At the same time, we provide guidance on the Phase III study design. Ideally, Takeda and Arrowhead would do these together. Takeda submitted a Phase III protocol to the U.S. FDA at the end of last quarter and is waiting for feedback. We expect Takeda to receive that feedback shortly if there are any comments at all.

We believe the FDA's feedback from prior meetings has been appropriately incorporated into the study design, so we do not expect any major surprises. I believe we have clarity on the future development paths and time lines as well as what the SEQUOIA data are telling us, and we will share that as soon as we can. Second, we are gaining a clear understanding about how our cardiometabolic programs perform in different patient populations and thus are better able to determine the positioning of each. And importantly, the development paths and studies needed to seek approval for various indications.

Javier will talk about this in a moment, but the interim analysis for the SHASTA-2 and MUIR studies of ARO-APOC3 and the ARCHES-2 study of ARO-ANG3, which we presented at AHA and at an analyst investor event shortly thereafter, gave us some critical insights that are helping to accelerate the path to Phase III studies. We are working on determining the optimal paths, and we expect to have further clarity, including from multiple anticipated regulatory interactions in 2023.

At present, we plan to pursue studies to enable us to treat patients with homozygous familial hypercholesterolemia, or HoFH, and heterozygous familial hypercholesterolemia, or HeFH with ARO-ANG3. We hope this would enable us to pursue a staged commercial strategy, whereby we could serve the small HoFH market first and grow into the HeFH market after those larger studies are complete and supplemental regulatory approval is obtained. For ARO-APOC3, we are conducting studies now to enable us to treat FCS patients, followed by treating patients with severe hypertriglyceridemia and eventually the broad population with mixed dyslipidemia.

As with the HoFH-to-HeFH approach, we like the staged commercial strategy and hope we can serve a small FCS market rather quickly and expand to the larger SHTG population and eventually the even larger mixed dyslipidemia populations when those studies are complete and their respective supplemental regulatory approvals are obtained.

Third, we have line of sight on time lines for initial interim clinical results for 2 of our pulmonary programs. James will give details on the status, but ARO-RAGE and ARO-MUC5AC are progressing well, and we anticipate being able to provide interim data publicly in the first half of 2023.

Should we have data that provides clinical proof of concept, I think this would be a potentially big derisking event for the candidates and for the pulmonary platform generally. We believe we've made a lot of progress with the platform since our generation 1 candidate ARO-ENaC and gaining clarity on how the generation 2 candidates perform will be exciting. Importantly, we are performing various analysis to assess pharmacodynamics using different methods. So we are confident that we should be able to define knockdown and duration of effect at different dose levels at different time points.

The ARO-MMP7 Phase I started later than ARO-RAGE and ARO-MUC5AC, but dosing healthy volunteers should begin imminently. Fourth, our ARO-C3 program continues to progress well, and we expect to have interim knockdown and safety data in the first half of 2023. This is an important program for us because: a, the squarely in our wheelhouse as an hepatocyte target; and b, because of the variety of opportunities we can pursue in various complement-mediated and complement-associated diseases.

Fifth, we continue to expand our platform into new cell types and have made enough progress to give us line of sight as to when we can discuss one of them publicly. I expect to provide guidance about our next cell type and initial targets by the end of the first half of 2023. Our goal is to continually expand our platform to gain access to a new cell type every 18 to 24 months. So far, we are ahead of that goal, and you should be hearing more about the work that has gone into the newest cell type and the encouraging preclinical results we are generating.

Sixth, we have a good idea about how large we think we can grow our pipeline in the near to midterm and are announcing our 20 in '25 program. We plan to have 20 individual drug candidates in clinical trials are in the market in 2025. Between our hepatocyte-directed programs, our pulmonary programs, potential skeletal muscle-targeted programs and new cell types, we believe we will hit 20 in the year 2025 between wholly owned drug candidates and partner programs. This will be a remarkable achievement that has the potential to touch millions of lives and create substantial value.

Seventh, we have better clarity about our financial resources. We currently have partnerships with 5 different companies, and we expect to receive milestone payments from each over the next 12 months. Further, our expanding platforms give us the ability to continue to do new business development deals that could continue to provide capital to fund our own programs.

Notwithstanding access to capital via these means, we recently decided to sell the potential royalties we would receive from Amgen on future olpasiran sales to Royalty Pharma. We received $250 million in cash upfront and up to $160 million in additional payments contingent on the achievement of certain clinical, regulatory and sales milestones. In addition, we retained rights to $400 million in development, regulatory and sales milestone payments potentially due from Amgen from the 2016 license agreement.

We have been very impressed with the data from the program, and we are confident that it has the potential to be an important medicine. However, the next step in development is a cardiovascular outcome study that will not read out for multiple years. So it made sense for us to monetize the potential stream of future royalties. This allows us to continue investing in our wholly owned programs, which we think are advancing rapidly to our potential commercialization and also continue to invest in our expanding pipeline and platform technology.

Our overarching goal is to bring important medicines to patients as quickly as possible. I believe there are 2 critical interrelated pieces to that: one, develop and commercialize some drugs ourselves; and two, substantially increase our market capitalization so we can do more of number 1. That is the price we need to keep our eye on. So every decision we consider should be made by asking ourselves if it gets us closer to or farther from that goal. In my mind, the decision to sell these future royalties clearly gets us closer to that goal.

With that overview, I'd now like to turn the call over to Dr. Javier San Martin. Javier?

Thank you, Chris, and good afternoon, everyone. I want to give updates on 2 main areas of our late-stage development efforts. First, on our cardiometabolic pipeline and second, on fazisiran formerly called ARO-AAT and TAK-999. Earlier this month, data was presented on all 3 of our cardiometabolic programs, ARO-APOC3, ARO-ANG3 and olpasiran at the American Heart Association Scientific Sessions 2022, and a virtual analyst and investor event that we hosted a couple of days after the AHA.

It was a very comprehensive review of the data and our plans for the program. So if you want to hear more from us and from external key opinion leaders in the cardiometabolic space, you can listen to a replay of the webcast or view the presentation slides, both are available on the Arrowhead website.

Today, I want to give some context about why we perform an interim analysis, highlight some of the important results and provide guidance on where we see the progress going in the future.

Chris mentioned earlier that we are gaining clarity across multiple programs, and this is a key point, especially for the cardiometabolic programs. We will now have more clarity on how each of the candidates performed in various patient populations and importantly, where we should focus late-stage developments.

So let me start with context on the interim analysis that led to the American High Association presentation. Our wholly owned cardiometabolic candidates, ARO-APOC3 and ARO-ANG3, each target different gene based on human genetic studies, preclinical animal model, each affect lipid and lipoprotein levels in different ways. Remember that we have data from different patient population in the completed Phase I/II studies and multiple additional clinical studies going on now for each program. For ARO-APOC3, we have the following stats: the SHASTA-2 Phase II study in patients with severe hypertriglyceridemia, the new Phase II study in patients with mixed dyslipidemia and the PALISADE Phase III in patients with familial chylomicronemia syndrome.

For ARO-ANG3, we have the following studies: the ARCHES-2 Phase II study in patients with mixed dyslipidemia and the GATEWAY Phase II in patients with homozygous familial hypercholersterolemia. We combined with the Phase I data within these studies give us a good feature of how the different candidates may affect lipid -- lipoproteins levels and thus which patient populations we should focus on for each. Therefore, the interim analysis enabled us to start the important work required to prepare for Phase III studies. This includes dosing interval, patient population selection, length of the study, modeling to estimate event rates and effect size, registration path and Phase III designs, and where and how to execute these studies.

We essentially gave ourselves a 6-month head start on all that work. This is critical since we plan on having multiple annual Phase II meeting and moving forward with multiple Phase III studies over the next 12 months.

Next, I want to highlight some of the key results from the Phase II study that we presented at the American Heart Association and our webcast event. ARO-APOC3, ARO-ANG3 and all olpasiran were all highly active at silencing their respective gene targets, which resulted in encouraging changes in multiple relevant lipids and lipoprotein levels.

In the SHASTA-2 study in subjects with severe hypertriglyceridemia, who had baseline triglycerides or TG greater than 500 milligrams per deciliter treatment with ARO-APOC3 at doses of 10 milligrams, 25 milligrams and 50 milligrams, all durable decrease APOC3 up to 87%, TGs up to 86%, non-HDL up to 45% and increased HDL cholesterol up to 99% through the week 16 time point. ARO-APOC3 has been well tolerated with treatment emergent adverse events reported today that reflect the underlying comorbidities and conditions of the population under study.

The MUIR study in subject with mixed dyslipidemia, who had an average TG of 220 million per deciliter, non-HDL of 150, LDL cholesterol of 110 and ApoB of 95, remnant cholesterol of 46, and HCL cholesterol of 42 mg per deciliter. Treatment with ARO-APOC3 have doses of 10 mg, 25 milligrams and 50 milligrams resulted in substantial reduction of APOC3 of 80%, TGs of 65%, non-HDL cholesterol of 25%, LDL cholesterol of 20% and ApoB 20%, remnant cholesterol decreased by 60% and HDL cholesterol increased by 50%. We believe these changes all represent key reduction in residual cardiovascular disease risk.

In ARCHES-2 study in subject with mixed dyslipidemia, who had baseline median TG of 226 milligrams per deciliter treatment with ARO-ANG3 at doses of 50 milligrams, 100 milligrams or 200 milligrams, resulted in a substantial reduction of ANGPTL3 up to 71% at week 8, TGs up to 59% at week 16 and LDL cholesterol up to 32% at week 16. ARO-ANG3 was also associated with median relative reduction in liver fat fraction at week 24 of 28% for the 100 and 200-milligram dose with no adverse event related to liver function tests changes reported to date. ARO-ANG3 has been well tolerated day with treatment emergent adverse event reported to date, consistent with those expected in this patient population and with associated underlying comorbidities.

Amgen also presented enough treatment data from its Phase II OCEAN A dose study of olpasiran in adults with elevate lipoprotein(a) level greater than 150-nanomoles per liter in a history of atherosclerotic cardiovascular disease. These data were also published in the New England Journal of Medicine.

Placebo-adjusted mean percent reduction of Lp(a) were 70.5% for patients receiving 10 milligrams every 12 weeks, 97.4% for patients receiving 75 milligrams every 12 weeks, 101.1% for patients receiving 225 milligrams every 12 weeks and 100.5% for patients receiving 225 milligrams every 24 weeks. The totality of these data demonstrate the significant progress achieving RNAi drug development specifically, which is a potential future treatment paradigm where Arrowhead's proprietary TRiM technology may be permanently leveraged in preventive cardiology.

So what do we do with ARO-APOC3 and ARO-ANG3. For ARO-ANG3, we're focusing on patient with hypercholersterolemia. ANGPTL3 Is a key regulator of lipid and lipoprotein metabolism that inhibits lipoprotein lipase and endothelial lipase. ARO-ANG3 has a unique mechanical function to address hypercholersterolemia distinct from other LDL cholesterol lowering therapies. It may address unmet need in patients with specific genetic mutation, for example, patients with dysfunctional LDL receptors. It may also be added to other LDL cholesterol-lowering therapies in patients not reaching (inaudible).

Patients with heterozygous familial hypercholesterolemia or HeFH, typically have LDL cholesterol greater than 190 milligrams per deciliter and have increased rates of ASCVD. They are estimated to be around 1.4 million patients in the U.S. with HeFH. Patients with homozygous familial hypercholersterolemia or HoFH, typically have LDL cholesterol greater than 400 milligrams per deciliter. There are around 1,200 patients with HoFH in the U.S. These are the 2 indications that we're focusing on initially for ARO-ANG3. Our plan is to have annual Phase II meeting in the first half of 2023 and then potentially begin Phase III studies in the second half of 2023.

We view ARO-APOC3 as having potentially a broader set of indications and patient population where it might provide a benefit. It potentially address the risk of bronchiectasis in severe hypertriglyceridemia syndrome. ARO-APOC3 also modulates multiple lipids and lipoproteins that contribute to the residual risk of cardiovascular in patients with mixed dyslipidemia, which has the potential to translate into a decrease in atherosclerosis and coronary disease progression.

ARO-APOC3 is a key regulator of lipid and lipoprotein metabolism that inhibit lipoprotein lipase and mediates hepatic uptake of remnants particles in the LPL-independent pathway. ARO-APOC3 improves multiple lipid parameters that may provide clinical benefit in a broad population with dyslipidemia. In clinical studies, it has reduced TL in patients with severe hypertriglyceridemia, including FCS, which has the potential to decrease the risk of acute pancreatitis.

It has also reduced multiple residual cardiovascular risk factors such as APOC3, LDL cholesterol, ApoB, remnant cholesterol and others in patient at risk of ASCVD. We're already conducting the PALISADE Phase III study of ARO-APOC3 in patients with FCS, which is approximately 50% enrolled at this time. Our plan for the additional indication is to have regulatory interactions in the second half of 2023 and begin Phase III studies in the first half of 2024. These additional indications are SHTG with a prevalence of around 4 million in the U.S. and patients at risk for ASCVD despite maximal tolerate statins with a prevalence of around 12 million in the U.S.

Now I want to move on to fazirsiran, our investigational RNAi therapeutic designed to reduce production of mutant from the alpha-1 antitrypsin protein called Z-AAT. The potential treatment for the rare genetic liver is associated with alpha-1 antitrypsin deficiency. Z-AAT accumulation is believed to be the cause of progressive liver disease in patients with AAT deficiency. Production of the pro-inflammatory Z-AAT protein has the potential to halt the progression of liver disease and potentially allow the liver to regenerate and repair.

Data from our label -- our open-label Phase II study were published earlier this year in the New England Journal of Medicine. Those data suggested that fazirsiran was very effective at reducing the production of the Z-AAT protein and that delivers of this patient were able to begin the process of healing. This includes breaking down and cleaning the accumulated Z-AAT in the liver, decreasing the histologic global burden, demonstrating histologic improvement in inflammation, reducing biomarkers of liver injury and ultimately decrease fibrosis severity. These were very encouraging signs for the potential of fazirsiran to help patients with AATD liver disease.

We now look to the fazirsiran Phase II placebo-controlled SEQUOIA study and to regulatory interactions on the Phase III study. The SEQUOIA data are mostly in now, and we're waiting to receive feedback, if any, from the FDA on the proposed design for the Phase III study. These are expected soon. So we are -- we and our partner at Takeda, will together determine the best way to communicate this publicly.

Takeda is still on schedule to begin the Phase III study in the first quarter of 2023. And we're confident that we can have an update publicly on SEQUOIA and guidance on the Phase III prior to that.

I will now turn the call over to Dr. James Hamilton. James?

Thank you, Javier. I want to give updates on 4 of our earlier-stage programs that include 3 pulmonary candidates, targeting RAGE, MUC5AC and MMP7, and on our candidate targeting complement C3.

Let's start with C3. ARO-C3 is an investigational RNAi therapeutic designed to reduce hepatocyte expression of complement component 3 or C3 as a potential therapy for various complement-mediated hematologic and renal diseases.

We are conducting a Phase I/II clinical study now that includes 2 parts. Part 1 is placebo-controlled and healthy volunteers and include single ascending dose or SAD cohorts and multiple ascending dose or MAD cohorts. All of the SAD and MAD cohorts are fully enrolled and participants are being followed to assess safety and tolerability, dose response based on serum C3 levels, and duration of effect at various dose levels. We are confident that we will have sufficient data in the first half of 2023 to report interim results from Part 1 of the study.

Part 2 is open label in eligible subjects with paroxysmal nocturnal hemoglobinuria, or PNH, and complement-mediated renal diseases, including IgA nephropathy and C3 glomerulopathy. Data from Part 1 will inform Part 2 dose selection, which we expect to happen in the coming months, and then the patient cohorts will be open for enrollment in the first half of 2023.

We are very excited about this program and believe it has the potential to address multiple serious complement mediated or complement-associated diseases with unmet need in the renal and hematologic spaces. We know that complement C5 inhibitors are disease-modifying in conditions such as PNH and believe that proximal C3 inhibition may confer advantages over C5 blockade. For example, C5 monoclonal antibodies only block the terminal complement pathway and many of the proximal complement actions remain intact. In addition, clinical validation exists for C3 inhibitors, and we believe RNAi-based C3 inhibition could have clear dosing advantages over other mechanisms.

Furthermore, alternative pathway inhibition is likely of key relevance for treatment of conditions such as IgA nephropathy, C3 glomerulopathy and potentially other glomerular diseases. ARO-C3 is a subcutaneously administered candidate with an expected long dosing interval of once every 3 months or less frequent. We think this would be much more patient friendly than current C3 inhibitors that require a high volume infusion multiple times per week.

I will now move on to our 3 pulmonary candidates starting with ARO-MMP7. ARO-MMP7 is designed to reduce expression of matrix metalloproteinase 7 or MMP7 as a potential treatment for idiopathic fibrosis or IPF. MMP7 is thought to play multiple roles in IPF pathogenesis, including promoting inflammation and aberrant epithelial repair and fibrosis. Silencing MMP7 expression in a rat IPF model reduced inflammatory cell infiltration, limited lung fibrosis and preserve pulmonary function. In August, we filed a CTA to begin a Phase I/II clinical study of ARO-MMP7. The Phase I/II study will be similar in design to our other first-in-human studies and includes a healthy volunteer portion followed by a patient portion.

Now moving on to our 2 other pulmonary programs, ARO-MUC5AC and ARO-RAGE, our investigational RNAi therapeutics designed to reduce production of mucin 5AC or MUC5AC and the receptor for advanced glycation end products or RAGE, respectively, as potential treatments for various muco-obstructive and inflammatory pulmonary diseases.

These 2 programs are on largely parallel paths and at approximately the same stage. They are both in Phase I/II studies designed to assess safety and tolerability, pharmacokinetics and pharmacodynamics in healthy volunteers first and then in patients with asthma. For both programs, we are approaching full enrollment of the healthy volunteer SAD cohorts and are well into enrollment of the healthy volunteer MAD cohorts. In both the SAD and MAD, we have various methods to assess target engagement, including induced sputum and bronchoalveolar lavage fluid.

And for RAGE, we are also measuring serum sRAGE protein, a circulating biomarker for RAGE target engagement in the lung. We anticipate that we will be able to report interim results from Phase -- from Part 1 of these studies and begin Part 2 in patients with asthma in the first half of 2023.

These are potentially important new medicines that address targets that have been difficult to drug with other modalities and are designed to treat muco-obstructive and inflammatory lung diseases in fundamentally new ways.

We are excited to see and share these results, and we are confident in the progress we've made on our pulmonary TRiM platform and these 2 -- these generation 2 candidates.

I will now turn the call over to Ken Myszkowski. Ken?

Thank you, James, and good afternoon, everyone. As we reported today, our net loss for fiscal 2022 was $176.1 million or $1.67 per share based on 105.4 million fully diluted weighted average shares outstanding. This compares with a net loss of $140.9 million or $1.36 per share based on 103.7 million fully diluted weighted average shares outstanding for 2021. Revenue for fiscal '22 was $243.2 million compared to $138.3 million for 2021.

Revenue in the current period primarily relates to our collaboration agreements with Takeda and Horizon. Revenue will be recognized as we complete our performance obligations, which includes managing the ongoing AAT Phase II clinical trials for Takeda and delivering a Phase I ready candidate to Horizon. There remains $128.4 million of revenue to be recognized associated with the Takeda collaboration, which we anticipate will be recognized over the next 2 to 3 years.

And there remains $66.7 million of revenue to be recognized for Horizon, which we anticipate will be recognized.

(technical difficulty)

And please remain on the line. Your conference will resume shortly.

Sorry, folks, we had a connection problem there. I'll continue about halfway through our -- my prepared remarks. Net cash used by operating activities during fiscal 2022 was $136.1 million compared with net cash provided by operating activities of $171.2 million during 2021. The increase in cash used by operating activities is driven primarily by research and development expenses. We expect our operating cash burn to be $70 million to $90 million per quarter in fiscal 2023, and we expect capital expenditures up to $200 million as we near completion on our footprint expansion projects, including GMP manufacturing.

Turning to our balance sheet. Our cash and investments totaled $482.3 million at September 30, 2022, compared with $613.4 million at September 30, 2021. The decrease in our cash and investments was primarily due to cash used for operating activities. Our common shares outstanding at September 30, 2022, were 106.0 million.

As Chris mentioned earlier, on November 9, in 2022, the company and Royalty Pharma entered into a Royalty Purchase Agreement pursuant to which Royalty Pharma agreed to pay up to $410 million in cash to the company in consideration for the company's future royalty interest in olpasiran, originally developed by the company and out licensed to Amgen, in 2016.

Pursuant to the Royalty Pharma agreement, Royalty Pharma paid $250 million upfront and agreed to pay an additional -- up to an additional $160 million contingent upon the achievement of certain clinical, regulatory and sales milestones.

The company retained rights to $400 million in development, regulatory and sales milestones payments, potentially due from Amgen from the same 2016 out-licensing agreement. Pro forma cash and investments at September 30, 2022, including the Royalty Pharma cash received would be $732.3 million. I will now turn the call back to Chris.

Thanks, Ken. In our business opportunity abounds. There is no shortage of need that the biopharmaceutical industry can endeavor to serve and no shortage of lives that can be touched. There's also no shortage of risk as unknowns abound. As such, clarity is at a premium and will often be a primary value driver. We feel good about the clarity we have recently achieved and expect to achieve in the short term. These include the following: planning for fazirsiran's Phase III is complete, and currently under review with the FDA and SEQUOIA data are in. We expect to be able to give guidance on the Phase III and present top line SEQUOIA data with Takeda shortly.

Interim Phase II data from ARO-ANG3 and ARO-APOC3 suggests that both drug candidates are doing what they are designed to do, and we have good plans as to how to apply these in various patient populations. We expect multiple end of Phase II meetings in 2023 and to initiate multiple Phase III studies shortly thereafter. Progress with ARO-MUC5AC and ARO-RAGE in Phase I/II studies has been good. We expect interim data that could provide clinical proof of concept in the first half of 2023.

ARO-C3 is progressing well in a Phase I/II study, and we expect interim data that could provide proof of concept in the first half of 2023. Our discovery engine continues to perform, and we expect to announce the next cell type we will be targeting in the first half of 2023. We have provided better clarity with respect to our balance sheet with our sale of olpasiran royalty rights for $250 million upfront plus $160 million potential additional payments. This is on top of the remaining $400 million we could access in clinical, regulatory and sales milestone payments from Amgen.

And finally, we have announced our 20 in '25 campaign. Our plan of having 20 individual drugs in clinical trials or ad market in 2025 will be a remarkable accomplishment that we believe will represent a large leap forward for medicine and position Arrowhead as a truly unique and impactful biopharmaceutical company. Thank you for joining us today. And I would now like to turn the call over to questions. Operator?

(Operator Instructions). And our first question comes from Maury Raycroft from Jefferies.

Just going to ask one on AAT. Wondering if you can clarify if you or Takeda has shared the Phase II biopsy data with FDA? And if their feedback will be based on the biopsy data or only the serum biomarker knockdown data?

Javier?

Yes, the feedback that we're looking is at the Phase III protocol design that was already discussed twice. And as Chris said, we already -- Takeda already incorporated most of the feedback. So this is more a procedure than anything else. And the SEQUOIA data is not part of this feedback that we're looking for. In other way, the SEQUOIA data that was necessary to inform the Phase III was already presented and is part of the discussion that we having with the agency over the last 4 or 5 months.

Got it. Okay. Okay. And then for the AAT data that you have in hand, can you comment on what you're seeing and better set expectations for what you will disclose? And if you start the Phase III in the first quarter of next year, do you think the update will happen in December or more likely around JPMorgan meeting in early January?

Yes. I can't give too granular guidance on the timing for the update. But I'll tell you, my hope is that we can do that in December. We just have to see what schedules look like. We expect the feedback, if any, from FDA almost any day now. And so we do have time to get that in December. And so we'll see. With respect to giving further guidance on the SEQUOIA data, we're just not going to do that. We will provide that update at the same time as we give guidance on what the Phase III will look like.

And our next question comes from Luca Issi from RBC Capital.

I have a quick one on APO versus ANG. It looks to me that you're prioritizing APOC3 over ANG3, especially for the larger mixed dyslipidemia population, can you expand a little bit more on the rationale behind the decision? And is it fair to assume that you're looking for a partner for APOC3 given that you need to run a cardiovascular outcome trial?

I'll take the second part, and then I'll hand the first part over to Javier. The answer is no, we are not looking for a partner for APOC3. That, to us, feels like an important opportunity for us. The data have been, from our perspective, unequivocal. And we see a large opportunity in large markets as well as smaller SHTG market and then, of course, the very small FCS market. So we like the opportunity, and we intend to conduct that cardiovascular outcome study ourselves and to commercialize that drug ourselves.

Yes. So a couple of things. So first, the Phase II data or the interim data that we presented at the American Heart Association really confirmed what we learned in the Phase I/II studies. So it wasn't about prioritization. It was about to really learn and confirm the specific therapeutic effect of these 2 molecules. And as we said before, ANG seems to be a drug that is more focused on hypercholesterolemia, and that is how we see the opportunity.

Now that's a much crowded space, when you think about the general hypercholesterolemia population, but this drug has a very unique pathway and mechanism of action that can address these specific smaller population the rare HoFH and the not so rare HeFH. So it's not about prioritization, but it's about where the profile of this drug fit in the context of clinical care particularly when you fast forward a few years from now. So ARO-APOC3, as you saw the data that we knew about the severe hypertriglyceridemia populations is confirmed, and it's very remarkable and is consistent.

And as I always said, with these therapeutics, we have 100% response with regard to hypertriglyceridemia. So our initial plan to go with the 2 severe hypertriglyceridemia syndrome, the FCS or the SHTG continue to be the same. What we are learning, and I think that was a key feature of our Analyst and Investor Day is what is the unmet medical need in cardiovascular risk reduction in the next 5 to 10 years. And we believe that the LDL cholesterol issue is probably well taken care of and the rest of the risks come from different sources of lipid and lipoprotein most of which are addressed with the ARO-APOC3 molecule. So in conclusion, we see the opportunity where the unmet medical need is and ARO-APOC3 fit very well those criteria. So it's not about prioritization, but it's really going to where the drugs have the biggest promise.

Yes. Look, I think that our development programs worked exactly as we design them to work. We have these 2 drug candidates that were clearly active and clearly had some overlap in their activity. And people would ask how we're going to apply these 2 drugs to various patient populations. And our answer always was we need to look at the data, and that will guide us. That was not a satisfactory answer to some people, but that was the answer.

And now that we have an interim look, we've got a better idea about how these will help various patient populations. And so now I think we've got a good idea. Again, as Javier said, we don't view this as prioritizing. We view this as just following where these drugs are going to have their greatest benefit in which patients.

And our next question comes from Ellie Merle from UBS.

For the initial pulmonary readout in the first half of next year, I guess what are you looking to see in terms of the degree of protein knockdown based on the dose levels that you're studying in healthy volunteers? And I guess when you think about pulmonary delivery, I guess, what does proof of concept for the pulmonary platform look like from this readout or if perhaps we need to wait for longer-term data?

Sure. Look, I think these are well-validated targets, particularly MUC5AC. But I think even RAGE and certainly MMP7. And so our thinking is that if we can see a well-tolerated deep knockdown in healthy volunteers, that is a substantial clinical proof of concept. We will also have some data later in the year in various patient populations. But I think if we can see good consistent knockdown in healthy volunteers that's well tolerated, I think that is giant leap forward for the entire platform and certainly for the individual candidates. With respect to how much knockdown we need, I don't think we're setting expectations for ourselves here. I think we want to see what we see. But our hope is that we see consistent and at least relatively deep knockdown. And if we can, I think that given the importance of these targets, I think that they will have disease-modifying effects.

And our next question comes from Joel Beatty from Baird.

For the lung programs, MUC5AC and RAGE, I think in your prepared remarks you mentioned that both of these programs are going to be reaching the top of the -- on the SAD cohorts and also showing MAD cohorts. How do you decide the peak dosing of those? Is this kind of preset? Or are you looking at safety or efficacy markers?

So the dose levels for the SAD and MAD are largely preset. And then as we go from one dose level to the next, we have an independent Data Safety Committee that reviews aggregate safety data and votes to allow dose escalation from the dose just completed to the next higher dose. Hopefully, that addresses your question.

Great. And then for the cardio drugs APOC3 and ANG3, do you see the market opportunity as more of displacing current drugs and being used in place of them or as add-on therapies to the current set of drugs in the market?

I think it's a little bit too early to opine on that. That's a broad question. Give us some more time so we can complete the Phase II, and we have a better idea about what that looks like and we can go from there. But at this point, I don't think that we want to get into how we slot into various therapeutic paradigms.

And our next question comes from Edward Tenthoff from Piper Sandler.

Two questions, if I may. Just housekeeping, what was the fourth quarter weighted average shares outstanding, if you have them to 3 decimal points? But then for Chris, kind of high level question. You guys have been so successful at partnering different therapies. You've been clear that cardiovascular is a key area of focus. How are you really looking at the pipeline going forward? Is pulmonary disease going to be an area of -- or a second area of focus? Are you going to look to partner some of those therapies? How should we be thinking about where you guys are going to stay focused and specialized?

Sure. Ken, do you want to address the first question?

Yes. The weighted average shares for Q4 were 105. 879 million.

Awesome. And then again, just in terms of higher level, obviously, a focus on cardiovascular disease. What else are you guys thinking about partnering or what is going to be core?

Sure. Thanks, Ed. So broadly, of course, that's a dynamic question because as the company grows and as market appetite's for various targets and drugs change, of course, that which can be partnered changes. Having said all of that, look, as we've said in the past, we like cardiovascular. We like what we're seeing with APOC3 and ANG3. We like the idea of building commercial force to address those. We like the staged approach there starting with HoFH and expanding into HeFH.

We like the idea of starting with small FCS and expanding into SHTG and expanding into mixed dyslipidemia. Now with regard to the pulmonary, look, that's a very interesting area. We think that's a target-rich environment. That feels to us like another liver. And we think, look, we can address that market. I think there are 16,000-or-so pulmonologists in the U.S., and we see not 2 or 3 or 4 drugs, but 8 or 9 or 10 drugs. So I think that we will play there.

Now because it's so target rich, I think we also could do some partnerships there at some point. We're not looking to partner these first 3 right now. But I think there's room there for us to build a real franchise. And then also to work with the right companies on a handful of other targets potentially. And then you look at our other candidates, C3, that's a very interesting drug candidate to hold on to ourselves. That gives us an awful lot of optionality in terms of how we commercialize that, where we go, how fast we can get there. So anyway, that's sort of a broad answer to your question, I guess.

And just hats off on the Royalty financing. That's a great deal.

Thank you.

And our next question comes from Patrick Trucchio from H.C. Wainwright.

I'm just wondering, I have a follow-up just on the platform. And if you can discuss the relative advantages of the siRNA approach as it compares to others such as small molecules or gene editing, specifically in the area of alpha-1. So also more broadly across the pipeline, what is your level of confidence that siRNA will be the preferred mechanism in these various targets and indications and the programs currently underway, particularly as these other modalities advance in clinical development?

Sure. So look, that's a little bit of a hard question to answer broadly because various drug candidates will have specific advantage. But I'll tell you broadly the way we look at this. RNAi is not the right modality for every indication, of course, but for many indications where you need to reduce the expression of some gene product, it's a good one. I think we've shown -- we and others have shown time and time again that RNAi appears to be a potentially better modality than antisense oligos in terms of dosing schedule, in terms of depth of knockdown, in terms of safety.

We think that will continue, at least as it relates to hepatocyte targets, and we'll see if that applies more broadly. When you look at gene editing, look, I think that's an interesting idea. I think that we're not quite ready for prime time there. And I think that there is a permanence associated with gene editing that may be -- that may cause some pause with -- at least for certain indications.

What's great about RNAi is that we get a good, long, durable effect, but yet it is ultimately reversible. After some period of time, that drug wears off. And it doesn't knock down the gene product any longer. What would concern me at least in the near to midterm with the gene editing approach is that the idea of having to unCRISPRize something is a daunting one. And so I think it's still a bit of an early technology. But at least as it relates to the indications we're going after, we believe that RNAi at least in our current pipeline is likely to -- and from my perspective, at least the preferred modality.

Yes. That's helpful. And then earlier in the call, there was commentary around increased clarity on which programs and how large the pipeline could become in the next few years with the goals outlined through 2025. So I'm wondering if you can elaborate a bit more on this commentary, particularly regarding gating factors involved in deciding which targets or disease to pursue, such as the level of genetic or clinical validation required? And how many programs either in terms of new INDs or some other metric would you be expected to announce on an annual basis going forward as you expand the pipeline?

Well, yes. So we're excited about our 20 in '25 program. We feel comfortable that we'll get there. I think 20 clinical candidates, whether wholly owned or partnered is a lofty goal, and I think we're going to achieve it. Regarding genetically validated targets and such, if you go down our pipeline, I think that there is pretty good consensus that these are all well-validated targets. With the possible exception of HBV just because it's a complicated virus, of course.

But everything else, I think, clearly, there is consensus among KOLs that if you can reduce the expression of these various targets, positive phenotypes will result. And our goal is to continue with that. Second, if you look down our pipeline, everything we've gone after, we've been the first RNAi player there. I'd like to continue that. At least in the near term, I think we will be continuing that. And then finally, with respect to our ability to get outside the liver. As we talked about with pulmonary, with skeletal muscle, we'll be announcing our next cell type in the first half of next year.

With all of these, it gives us the ability to run out and take land, right? We don't see any near-term competitors in these extra hepatic spaces at least so far, and so it gives us the ability to really be choosy and go after targets that are well validated to decrease our biology risk.

And our next question comes from Madhu Kumar from Goldman Sachs.

Maybe following up on Ellie's question, what do you think is the dynamic range of RAGE and MUC5AC knockdown that will be predictive of clinical benefit in these obstructive pulmonary conditions?

James?

Yes. So for RAGE, I would say, based on our animal data, we were in the Alternaria area model that we presented at ATS, we were wanting to get better than 50% knockdown -- 60% to 70% knockdown in that particular animal model. And then for MUC5AC, I think if you look at the patient data versus the healthy volunteer expression level for MUC5AC that patients have maybe tenfold more MUC5AC compared to what the [healthy] has. So I think that -- and you probably don't have to bring the patients back to normal levels to have a benefit. But particularly in the patients, I think there's pretty significant dynamic range in terms of MUC5AC knockdown such that if you get 50% reduction in MUC5AC expression, we may see an associated clinical benefit. I don't know if that addresses your question.

No, that's helpful. Maybe on AAT, I guess kind of -- how much different would you expect the SEQUOIA data to be from the Phase II open-label extension given kind of patient recruitment in SEQUOIA relative to the open-label extension? Is there any reasons for it to be a significant difference in the disease course in the SEQUOIA patients relative to the open label extension?

I don't believe so. No, they should be similar. Look, we always viewed that open-label data as important in terms of pegging a story. It was a small number of patients, but we thought it pegged the story. And we have been looking for -- we've been hoping that SEQUOIA would confirm that story.

And our next question comes from Mayank Mamtani from B. Riley.

I appreciate you putting out the 2025 campaign. So maybe on the SHASTA study, a quick follow-up on the 2 pancreatic events that you saw there admittedly in a blinded manner, but is that what you would expect for a study this size? And in general, what would be the event rate for SHTG study? And maybe a second part, as you think about validating triglyceride as an approvable end point for either SHTG or for larger mixed dyslipidemia indication, how are you sort of thinking about that next year?

Yes. So with regards to the 2 cases of pancreatitis are well within the expected event rate, which is about 3% to 5% per year in this patient population. So we saw 2 cases in about 200 patients and by the time we -- I mean, by now we have almost 1 year follow-up in most of those patients. So yes, the event rate is what we expected. And the second part with regard to the Phase III study, I think we commented on this before, the registration program for ARO-APOC3 in the severe hypertriglyceridemia indication does not need pancreatitis endpoint for approval.

But of course, we would like to enrich the patient population as much as possible to provide information about pancreatitis risk reduction, which is the goal of therapy. And that would be very important for many other reasons really to translate the clinical benefit, to define the value proposition and so forth. So the approval path does not require pancreatitis, we will do our best to have enough number of patients at high risk. So we can see the risk reduction in pancreatitis as a consequence of normalizing triglyceride levels.

And then just a quick one on A1AT. Are you able to comment on how -- as you think about Phase III, how are you thinking about placebo response? Because there have been studies recently put out independent of this program and also by Takeda about how to sort of think about F2, F3 patients differently. So is there anything you could comment on that on the placebo response for Phase III, how you might be thinking about?

So we're going to use the totality of the data available to estimate the placebo rate and that would be part of the equation for the effect, size and the power for the study. So you will see that in detail whenever we can do this event with Takeda and present the SEQUOIA data and the Phase III study design. So we, of course, use the totality of the data to plan for that study.

And our next question comes from Keay Nakae from Chardan.

Chris, one question on AATD, the Phase III design, is it your expectation that the agency will or will not require care biopsy data?

Yes. So the biopsy data is likely to be the key endpoint. That's where we will -- we're thinking that's what we studied. That's what the disease is defined by. So this is a disease about fibrosis progression and end-stage liver disease so cirrhosis. So the goal of therapy is to prevent fibrosis progression or to reduce fibrosis severity. So that seems to me a logical approvable endpoint in a condition that is defined by fibrosis progression.

And our next question comes from Mani Foroohar from SVB.

I've got a couple of questions more about your own sort of rationale and strategy given that a lot of other analysts have dug into the details of this or that specific program. So I'll start with SEQUOIA. Did I hear right that your plan is to disclose the upcoming SEQUOIA data green biopsy alongside the Phase III trial design? And if so, could you give me a sense of the rationale of why those 2 should come out at the same time?

And then secondarily, there's been a few people who've asked about your strategy around running CVOTs, which assets to hold on to or not. Can you give me a sense of what your ballpark estimate around the size, cost and the operational burden of a CVOT would be for you? And how you guys think about the number of studies of that scale that you could run for your assets simultaneously?

Sure. So the first question is -- I've got more on the first question than the second question. So look, having a complete data set for SEQUOIA and having clarity on what the Phase III looks like just happened to come out at around the same time. And so it made sense for us to present both of those at the same time. And I think they're both related, of course, and they feed on each other, of course. If there was a big time delta between the 2, we would have been happy to separate those. But it just turns out that, again, the SEQUOIA data are analyzed and we expect to have final clarity on the Phase III data at about the same time.

So it makes sense to do this together. And we'd like to do them in conjunction with Takeda, that makes sense as well. We'll just see when the calendars will align for that. With respect to the CVOT, look, we haven't given any guidance on how large a study would be and how much it would cost yet, in large part because we haven't had those end-of-Phase II meetings with the FDA. We really want to start to have these discussions before we opine on that because there are several ways you can do a CVOT, of course.

And it just feels a little bit early to opine on that. We will give guidance on that once we have it. But we just -- we're still pretty early here. We've got an interim look. We have a pretty good idea about what the data we think are telling us. And then we still are going to run these studies out to the end and then have end-of-Phase II meetings. And so I expect that next year sometime we can give you better guidance or some guidance on size, cost, et cetera, for the CVOT.

Can I ask one quick follow-up on that second half of that question?

Sure.

For HeFH in particular, how do you think about the appropriate patient population to study? There are a number of approved therapies out there, PCSK9 targeting and otherwise. But the universally available therapies varies pretty wildly across geographies, not in terms of approval, in terms of actual availability of patients, given reimbursement, et cetera, and real-life barriers.

So how do you think about the strategy between pursuing a study focused in areas where patients don't really have access to approved therapies versus a study, an add-on with approved therapies to allow you to access the U.S. and Western European market with more real world relevant data? How do you balance those 2? Would you do 2 CVOTs? Would you do 2 HeFH studies, is there someone to capture the 2 and 1 larger multi-arm study? Help me think about how you strategize and think about the likely outcomes for that path forward in that indication.

Yes. Again, this will be an (inaudible) answer to you, and I apologize. But until we start to have these interactions with the regulators, it's hard for us to know what -- it's hard for us to give you a good answer on that. Again, keep in mind that we're still -- we still haven't finished that study yet. We wanted to tell the Street as quickly as we could, where we think we can apply these 2 drugs. I think we've done that, but we're not yet ready to talk about how we would roll this out, where we'd roll this out, what sorts of studies would support these kind of -- these sort of populations until we start to have those interactions.

And I am showing no further questions. I would now like to turn the call back over to Chris Anzalone for closing remarks.

Thanks, everyone, for joining us today. I hope everyone had a pleasant Thanksgiving holiday and have a nice larger holiday season. I apologize for the technical difficulties mid-call today, but we will talk to you soon.

This concludes today's conference call. Thank you for participating. You may now disconnect.