Arrowhead Pharmaceuticals Inc (ARWR) 2022 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 Finance and Investor Relations for Arrowhead. Please go ahead, Vince.

Thank you, Latonya, and good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its fiscal 2022 second quarter ended March 31, 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. We will then open the call up to your questions.

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. I want to start by thanking you -- I want to start by saying thank you to all those who joined us yesterday in Verona, Wisconsin for the groundbreaking ceremony at the site of our new manufacturing and lab facilities, including Mayor Diaz, Secretary Hughes and Governor Evers.

Many people from BioForward, the local universities, the cities of Madison and Verona and the state of Wisconsin have been very supportive of Arrowhead over the years. We appreciate their partnership as we grow our business and capabilities to support the potential future commercial opportunities for our investigational RNAi-based medicines.

To that end, we announced yesterday that we received awards of up to $18.5 million in incentives to invest in the local region and create new jobs. These incentives help to defray some of the build-out costs for our Verona facility. But importantly, they demonstrate the commitment of the region to expand the number of highly skilled jobs and attract talent.

We have been very impressed with the quality of the workforce and intend to be a long-time contributor to the growing biotech ecosystem in Wisconsin.

So what does this new manufacturing facility and associated office and lab facility do for Arrowhead? First, it increases our control of our manufacturing at all scales, which should decrease cost and increase our speed and flexibility.

Second, it enables us to better control IP as we develop new methods of manufacturing aimed at decreasing costs and increasing purity and scale.

Third, it makes us a better and more complete partner to those companies bringing the drugs we create to patients.

And fourth, it provides additional specialized lab space to enable continued growth and innovation as we bring RNAi to new cell types and address new diseases.

This is an investment in Arrowhead's future as a vertically integrated commercial stage pharmaceutical company. We are making this investment now because we have a high degree of confidence in our investigational medicines, both wholly owned and partnered.

This is an important step when a development stage company is serious about becoming a commercial entity.

Let's now talk about some of the recent progress we've made toward that transition. First, we initiated the PALISADE study, Arrowhead's first Phase III study of ARO-APOC3 in patients with familial chylomicronemia syndrome, or FCS. FCS is a rare disease in which patients have extraordinarily high triglyceride levels, often in the thousands of milligrams per deciliter.

This can lead to severe and recurrent bouts of pancreatitis, which often involves hospitalization and can be fatal. In addition, these patients experience multiple additional symptoms, which adversely impacts quality of life. These patients have no FDA-approved treatment options.

Our clinical data in prior studies of ARO-APOC3 have shown clear and dramatic reductions in triglycerides, so we are confident that ARO-APOC3 is doing what it is designed to do. We are working to accrue patients in the PALISADE study as quickly as possible since there is such high unmet need for these patients.

In addition to starting our first Phase III study, we also completed enrollment in the Phase IIb ARCHES-2 study of ARO-ANG3, our other wholly owned investigational cardiometabolic candidate for patients with mixed dyslipidemia. This study enrolled over 200 patients with elevated triglycerides and LDL cholesterol. Completion of ARCHES-2 is anticipated around the end of this year, and we intend to release top line data in the first half of 2023.

These data will inform the next phase of development and potentially provide a path to another late-stage clinical study that we hope will be registrational.

We also recently initiated the gateway study of ARO-ANG3 in patients with homozygous familial hypercholesterolemia, or HoFH. This study will evaluate the ability of ARO-ANG3 to reduce LDL cholesterol in patients with the most serious and rare form of familial hypercholesterolemia. We view the HoFH opportunity in a similar way to the FCS opportunity for ARO-APOC3, where there may be a rapid path to approval in a narrow patient population with severe disease, while we conduct larger clinical studies in higher prevalence indications.

As I mentioned earlier, our investment in the new manufacturing facility is to support our growth into a commercial stage company. We think there are multiple opportunities to get there in the near to midterm, and we are preparing on all fronts.

To that end, we appointed a new member of our Board of Directors. Vicki Vakiener is an accomplished commercial pharmaceutical executive with decades of experience building commercial organizations and launching new products across multiple therapeutic areas. She'll have an important voice on the Board and provide valuable input as our commercial strategy maps out.

I also want to give a brief update on our later-stage partnered candidates. These are Olpasiran targeting Lp(a) with Amgen; ARO-AAT also called TAK-999, with Takeda; JNJ-3989, formerly ARO-HBV for chronic hepatitis B infection, with Janssen; and ARO-HSD for treatment of NASH with GSK.

Amgen has indicated publicly that Phase II clinical data for Olpasiran is expected around the middle of the year. They've also indicated that if the data are consistent with the positive data seen in Phase I that they would move rapidly to start a Phase III study. We are very excited about this program and eager to see the Phase II data. We believe that elevated triglycerides, Lp(a), LDL cholesterol and possibly low levels or poorly functioning HDL are all contributors to the substantial remaining risk of cardiovascular disease, even in patients on maximal LDL lowering therapies.

We have candidates addressing all of these. Our 2 wholly owned programs, ARO-APOC3 and ARO-ANG3 and our partner program with Amgen may be able to address multiple lipids that contribute to this risk.

We still need to conduct clinical studies to assess their efficacy and safety, but we have a high degree of confidence in these programs.

Moving on to TAK-999. We are on schedule to collect the last 12-month biopsy from the last patient in the SEQUOIA study in June or July of this year. After the sample is taken, all clinical samples will be processed and analyzed, and biopsies will be prepped and read. This process will likely take a few months, so we should have data available in the fall.

Our intention would be to present those data in an appropriate forum. According to our agreement, Takeda will lead clinical developments and regulatory interactions after Phase II. We will still be closely involved with the process and have had a very productive relationship with our colleagues at Takeda. We look forward to additional regulatory interactions this year and moving the program forward rapidly.

JNJ-3989, formerly ARO-HBV, is being investigated in multiple large Phase II studies that all include a follow-up phase. Together, these will include close to 1,000 patients on various combination therapies, and we would have regular readouts for the foreseeable future as data come in. Public data thus far suggests that JNJ-3989 is doing what it is designed to do in substantially reducing viral antigens. We are excited to see these data and are hopeful that they will point to a treatment that is desperately needed by the 300 million people thought to suffer from chronic hepatitis B infection worldwide.

Our partnership with GSK for ARO-HSD closed at the end of the first quarter this year. Since then, we have been working productively together and expect GSK to initiate a Phase II study this year in patients with NASH. This represents a large unmet medical need. HSD is a genetically validated target. We believe we were the first to address this target clinically, and our Phase I data were compelling in terms of knockdown, tolerability and transaminase decreases in patients with suspected NASH.

Complementing our mid- and later-stage pipeline, we are also active during the quarter expanding our early-stage clinical pipeline. We believe sustainable growth requires a diversified portfolio of candidates across the therapeutic areas, disease prevalence and patient population size and across stage of development, so it's critical that we both advance our later-stage programs and also constantly expand our early-stage pipeline.

We must also remember that Arrowhead is really good at moving rapidly from idea to the clinic. We likely will not have the bandwidth to commercialize everything we produce, and we certainly do not intend to tap the brakes on early development. As such, some of those programs will be partnered to, a, put them in the hands of companies that will move aggressively to get them to the patients who need them; and b, provide capital for us to commercialize our wholly owned assets.

Developing important new medicines is an expensive business, and we have the luxury of not being solely dependent upon the capital markets to fund this. We expect this year and every year for the foreseeable future to bring in significant capital from new and existing partnerships.

I expect Arrowhead to commercialize a variety of important medicines, and a targeted partnership strategy helps provide necessary capital for this, while also providing potentially substantial long-term economics.

We added 3 new clinical programs over the recent period: ARO-C3 for treatment of complement-mediated diseases for which we initiated a Phase I/II clinical study; and our second and third pulmonary programs, ARO-RAGE and ARO-MUC5AC, for which we filed CTAs to initiate Phase I/II clinical studies. We'll talk more about ARO-RAGE and ARO-MUC5AC at our upcoming pulmonary R&D day on May 26.

Arrowhead team members and 2 external key opinion leaders will talk about the treatment landscape for various muco-obstructive and inflammatory lung diseases and the role that RAGE and MUC5AC may play in addressing them.

We will also discuss other advancements in the pulmonary platform and disclose the next pulmonary candidate we expect to bring to the clinic.

During the quarter, we also presented interim results for a Phase Ib dose-finding study of ARO-HIF2, our investigational candidate for patients with clear cell renal cell carcinoma. The data presented provide initial proof of concept -- I'm sorry, initial proof of target engagement based on reductions in HIF2 alpha expression.

We have been working on a HIF program for over a decade using different strategies and many different iterations of our delivery technologies. Our goals for that program were threefold. One, we wanted to develop a HIF2 alpha targeted therapy because there are supportive evidence that it could have an effect for RCC patients, and it had historically been undruggable with small molecules or monoclonal antibodies.

Two, we wanted to validate that we could get functional delivery of siRNA to solid tumors, indicating that we may have a platform that can be applied to additional targets in cancer types.

And three, we wanted to use the tumor delivery program as a way for us to learn critical lessons that could be applied to delivery systems targeted to various other extrahepatic tissues.

We think we accomplished numbers 2 and 3, but the therapeutic landscape has changed for goal number one. The competitive environment is dramatically different today than it was just a few years ago with 1 small molecule HIF2 alpha inhibitor FDA approved and others in clinical development.

We have examined the data from our clinical study. And at this point, based on the competitive environment, we have decided not to continue further development of ARO-HIF2. This decision was made after significant deliberation and analysis, and we would like to acknowledge and give our sincere thanks to the investigators, site staff and, of course, patients who participated in our clinical study.

However, as I mentioned, we did accomplish some important things with our first tumor-targeted program. Probably the most critical piece that has wide-ranging implications is that we learned more about how to optimize each individual component of the system to squeeze as much knockdown as possible out of each siRNA molecule. These lessons made it possible for us to develop the technology to get to various other extrahepatic tissues.

We believe we are now much better at several things, including trigger design, optimizing chemical modifications, ligand design and selection, linker optimization and design and use of PK/PD enhancing structures as well as other things that can optimize target engagement.

We also believe that we have a good start in our oncology platform. We saw clear target engagement suggesting that we are able to deliver to solid tumors. In short, we are on the board. We are now using the lessons we learned from that study to further optimize the platform for use in other tumor types against new targets.

We believe that RNAi can play a role in cancer treatment, and we are pushing in that direction.

I want to highlight one more piece of corporate news. We recently announced that Arrowhead formed a joint venture called Visirna Therapeutics with Vivo Capital to expand the reach of innovative medicines in Greater China. Vivo provided initial funding of $60 million to Visirna, which will have exclusive rights to develop and commercialize 4 of Arrowhead's investigational therapeutics for cardiometabolic diseases in Mainland China, Hong Kong, Macau and Taiwan.

Arrowhead has a majority stake in Visirna after accounting for shares reserved for the employee stock ownership plan and is further eligible to receive potential royalties on commercial sales.

China is an increasingly important market for global pharmaceutical products. We believe to be successful in China, you are better off in a dedicated entity with its own management and development staff that understand and are solely focused on the intricacies of China's clinical, regulatory and commercial environment. That is what we envision Visirna becoming.

We are looking for more than just a financial investor, and Vivo checked all the necessary boxes. Vivo has unique experience, expertise and a local network to draw upon. That makes them a very valuable partner in this joint venture. We think this transaction allows us to maximize value and maximize the probability of success without losing focus on our core target markets for future commercialization, really a win-win scenario and a transaction that we think over time has the potential to become substantially more valuable.

We view this as another quarter where we executed well and achieved some key corporate goals. For a company our size with respect to headcount and market value, we have a uniquely broad and diverse set of assets.

A key part of the Arrowhead DNA is a devotion to speed and precision and a commitment to bring RNAi to intractable diseases. This prior period is a good example of that.

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 will provide updates on enrollment for the VISTA set of studies for ARO-ANG3 and the SUMMIT study for ARO-APOC3 and give some forward guidance on anticipated timelines. I will start with the VISTA studies of ARO-ANG3, our investigational medicine designed to reduce production of angiopoietin-like protein 3 as a potential treatment for patients with dyslipidemia.

There are currently 2 active studies, ARCHES-2 in patients with mixed dyslipidemia and GATEWAY in patient with HOFA. ARCHES-2 is a double-blind placebo-controlled Phase IIb study. ARCHES-2 is fully enrolled with 204 patients with triglycerides of between 150 and 500 milligrams per deciliter and non-HDL cholesterol greater than 100 milligrams per deciliter or LDL cholesterol greater than 70 milligrams per deciliter.

Being randomized in a 3:1 ratio to receive either subcutaneous injection of ARO-ANG3 or placebo on day 1 and week 12, 3 dose levels of ARO-ANG3, 50 milligrams, 100 milligrams and 200 milligrams are being evaluated against placebo.

The duration of the study is approximately 42 weeks from screening to the week 36 end-of-study examination. After completing the week 36 visit, participants will be eligible to continue in an open-label extension period.

We anticipate that ARCHES-2 will be completed around the end of 2022, and top line data will be available to share in the first half of 2023.

The next active study is GATEWAY, an open-label Phase II clinical study to evaluate the efficacy and safety of investigational ARO-ANG3 in up to 16 subjects with HoFH.

2 dose level of ARO-ANG3, 200 and 300 milligrams, will be evaluated in such as -- with documented HoFH based on genotype or clinical criteria, and with fasting LDL cholesterol greater than 100 milligrams per deciliter and fasting triglycerides less than 300 milligram per deciliter at screening.

Subjects will receive a subcutaneous injection of ARO-ANG3 on day 1 and day 84 and may be eligible to participate in an optional open-label extension study. The primary effect of the GATEWAY study is to evaluate the efficacy and safety of ARO-ANG3 in subjects with HoFH and the primary end point is the percent change in fasting calculated LDL cholesterol from baseline to week 44 -- 24.

We just started opening clinical sites and enrolling GATEWAY a few weeks ago, so we don't have a great visibility into how long it may take to accrue all 16 patients. Our goal is to have the study fully enrolled or at least have a meaningful amount of patients enrolled by the end of this year. Since this is an open-label study, we may be able to view results in somewhat real time, so we intend to share data in 2023 when possible.

Next, I will provide an update on the SUMMIT study of ARO-APOC3, our investigational medicine targeting apolipoprotein C-III being studied in patients with various lipid disorders. There are 3 active studies, SHASTA-2 in patients with severe hypertriglyceridemia, or SHTG; MUIR in patients with mixed dyslipidemia; and PALISADE in patients with FCS.

SHASTA-2 is a double-blind, placebo-controlled Phase IIb study in up to approximately 216 patients with triglycerides greater than 500 milligrams per deciliter. 3 dose levels of ARO-APOC3, 10 milligram, 25 milligram and 50 milligrams, will be evaluated against placebo.

The primary objective of the SHASTA-2 study is to evaluate the safety and efficacy of ARO-APOC3 and to select dosing regimen for later-stage clinical studies in this patient population.

Moving on to the MUIR study, which is a double-blind placebo-controlled Phase IIb study in approximately 320 patients with triglycerides between 150 and 500 milligrams per deciliter and non-HDL cholesterol greater than 100 milligrams per deciliter or LDL cholesterol greater than 70 milligrams per deciliter.

In 3 cohorts, 10, 25 and 50 milligrams, each participant will receive subcutaneous injection on day 1 and week 12 for a total of 2 injections. And in one additional 50 milligram cohort, each participant will receive a subcutaneous injection on day 1 and week 24 for a total of 2 injections.

The primary objective of the MUIR study is to evaluate the safety and efficacy of ARO-APOC3 and to select the dose and dosing regimen for later-stage clinical studies in patients with mixed dyslipidemia.

SHASTA-2 and MUIR are both approximately 50% enrolled, and we anticipate full enrollment in the fourth quarter of 2022. This would allow for study completion in 2023.

The last study is the SUMMIT program in PALISADE, a Phase III study in approximately 72 patients with FCS. Primary endpoint of PALISADE is the [percent change] from baseline at [month 10] in fasting triglycerides.

Additionally, secondary and exploratory endpoints include the change in other [lipid] parameters, incidents of acute pancreatitis and other measures. While working hard to open clinical sites around the world to accrue the study as fast as possible, we originally anticipated recruiting a number of patients in Russia, Ukraine and Belarus. However, due to the ongoing conflict, we have closed all clinical sites in the region.

We're adding clinical sites in additional countries to maintain patient accrual. Our current goal is to have PALISADE fully enrolled in the middle of 2023, which would allow for study completion in 2024.

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

Thank you, Javier. I want to give updates on a few of our early-stage clinical programs and preclinical programs. Let's start with ARO-C3, our investigational RNAi therapeutic designed to reduce production of complement component 3 or C3, as a potential therapy for various complement-mediated diseases.

During the quarter, we dosed the first subjects in a clinical study. This is a Phase I/II placebo controlled dose-escalating study to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of ARO-C3 in up to 24 adult healthy volunteers and up to 24 patients with paroxysmal nocturnal hemoglobinuria, or PNH, and up to 14 adult patients with complement mediated renal disease.

In Part 1, healthy volunteers will receive a single subcutaneous injection of ARO-C3 or placebo. In Part 2, eligible subjects with PNH or complement-mediated renal disease will be enrolled to receive open-label ARO-C3.

We have completed dosing in 3 of 4 planned cohorts in Part 1 and expect to dose escalate to the final planned cohort. We intend to initiate Part 2 in patients when we have selected a dose from Part 1 in the next quarter or so.

Moving on to our first planned skeletal muscle targeted candidate, ARO-DUX4, our investigational candidate designed to target the gene that encodes human double homeobox 4 protein, or DUX4, as a potential treatment for patients with facioscapulohumeral muscular dystrophy or FSHD.

FSHD patients have no real therapeutic options, so we are moving as quickly as possible to begin clinical studies. However, it has been challenging for the field to identify a reliable biomarker of DUX4 expression or of disease activity in patients with FSHD.

Thus, it is likely that Phase I results may not be informative with regards to pharmacodynamic biomarkers and may only inform on initial safety. Longer Phase II studies may be required to see any signs of favorable changes on imaging or in clinical endpoints. As such, in an effort to derisk Phase II studies, we have opted to wait for the results of chronic toxicology studies prior to filing a CTA for ARO-DUX4. We will provide an update on timing of the CTA when we have a clear assessment on chronic tox results.

The next update I want to give is on our discovery stage programs with Janssen called ARO-JNJ2 and ARO-JNJ3. We previously delivered candidates to Janssen that met the parameters described in the research plan.

Both candidates achieved the desired level of safety and activity. Janssen then had a period in which to do disease model and biology work on the targets they selected before having to opt in and exercise the option to take an exclusive license to these candidates.

That period has now expired, and Janssen did not elect to exercise their option. Because of this, we are removing the programs from our active pipeline.

The first discovery program outside of hepatitis B in our collaboration with Janssen is JNJ-75220795, formerly called ARO-JNJ1. This is an investigational siRNA therapeutic developed using Arrowhead's proprietary TRiM platform and is designed to reduce expression in the liver of patatin-like phospholipase domain containing 3 or PNPLA3, as a potential treatment for patients with nonalcoholic steatohepatitis, or NASH. This program is in a Phase I clinical study and continues to progress as planned in clinical development.

The last programs I want to discuss are our newest pulmonary candidates, ARO-RAGE and ARO-MUC5AC. We filed CTAs last quarter, and I am pleased to announce that both programs have received provisional approval from an ethics committee and now have regulatory clearance to begin clinical studies. We anticipate first-in-human studies will begin around the middle of 2022.

The first program, ARO-MUC5AC, targets expression of MUC5AC, a mucin protein with upregulated expression in the asthmatic airway. ARO-MUC5AC is an extremely exciting program, in part, because it represents a fundamentally new way of treating muco-obstructive disease.

The second program, ARO-RAGE, targets expression of the receptor for advanced glycation end products, or RAGE. RAGE represents an upstream mediator of the inflammatory cascade.

We believe they both have a differentiated mechanism and offer potential advantages over currently available therapies for various muco-obstructive and inflammatory pulmonary diseases. We will describe these programs in more detail at our pulmonary R&D Day on May 26.

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

Thank you, James, and good afternoon, everyone.

As we reported today, our net income for the 3 months ended March 31, 2022, was $44.4 million or $0.41 per share based on 107.9 million fully diluted weighted average shares outstanding. This compares with a net loss of $26.8 million or $0.26 per share based on 103.9 million fully diluted weighted average shares outstanding for the 3 months ended March 31, 2021.

Revenue for the quarter ended March 31, 2022, was $151.8 million compared to $32.8 million for the quarter ended March 31, 2021. Revenue in the current period primarily relates to the recognition of $120 million upfront payment received under our collaboration agreement with GSK and recognition of a portion of the upfront payments received from our license and collaboration agreements with Takeda and Horizon.

The upfront payment for GSK was recognized as revenue entirely in this quarter as our performance obligations are substantially complete. Revenue for our collaboration agreements with Takeda and Horizon will be recognized as we complete our performance obligations, which include managing the ongoing AAT Phase II clinical trials for Takeda and delivering a Phase I ready candidate to Horizon.

There remains $167.6 million of revenue to be recognized associated with the Takeda collaboration, which we anticipate to be recognized over approximately 2 to 3 years, and there remains $20 million of revenue to be recognized for Horizon, which we anticipate will be recognized by the end of calendar 2022.

Revenue in the prior period primarily related to a recognition of a portion of the milestones received from our license and collaboration agreements with Janssen and Takeda.

Total operating expenses for the quarter ended March 31, 2022, were $110.3 million compared to $61 million for the quarter ended March 31, 2021. This increase is primarily due to increased clinical candidate costs as our pipeline has expanded and advanced through clinical trial stages as well as increased compensation expense.

Net cash provided by operating activities during the 6 months ended March 31, 2022, was $1.4 million compared with net cash provided by operating activities of $225 million during the 6 months ended March 31, 2021.

The key driver of this change was the collection of the $120 million upfront payment from GSK in the current period versus the collection of the $300 million upfront payment received from Takeda in the prior period.

We continue to estimate our operating cash burn to be $60 million to $80 million per quarter in fiscal 2022, excluding any incoming milestone payments from our partners. In addition, we are expanding our manufacturing capabilities in our R&D facilities.

Because these 2 projects have only recently begun, our capital expenditures in fiscal 2022 will be lower than originally estimated, but capital expenditures will increase next year.

Turning to our balance sheet. Our cash and investments totaled $603.5 million at March 31, 2022, compared to $613.4 million at September 30, 2021. The decrease in our cash and cash -- the decrease in our cash and investments was primarily due to cash used for operating activities, offset by the cash collection of $120 million upfront payment from GSK in January 2022. Our common shares outstanding at March 31, 2022, were 105.7 million.

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

Thanks, Ken, and thanks to all of you for joining us today. When markets go through cycles of intense pressure as they are today, investors seek value. Each investor needs to define for themselves what value means, but I see value in a biotech company through several questions.

Does the company have multiple potential drugs? Are those potential drugs built on a platform with known safety and activity parameters? Are those drugs addressing real unmet medical needs in a unique way? Does the company have sufficient capital and access to capital? Does the company have a track record of execution? Does the company have the ability and commitment to continued pipeline growth? And is the company focused on long-term growth in getting drugs to patients?

These may seem simple and straightforward, but precious few companies our size can answer all of these questions in the affirmative. I believe that we do. And by focusing on core principles such as these, Arrowhead is well positioned to do right by the patients we serve and create substantial value for our shareholders.

I believe we have a pipeline that is substantially larger than any company our size and larger than most companies several times our size. Everything we do is built on RNAi and the TRiM platform, both of which are increasingly validated clinically. Whether addressing chronic HBV, where it is thought that someone in the world dies every 30 seconds from complications of the infection, or cardiovascular disease, we are addressing clear unmet medical needs, and we believe we are the first to use RNAi against every target we are going after.

We have a strong balance sheet and, importantly, access to ongoing capital as our current partnerships mature and trigger milestone payments. We have demonstrated our consistent ability to move rapidly to the clinic and into later-stage trials. Our pipeline continues to grow with 3 new candidates entering clinical studies over the past 6 months alone, and we expect more through the end of the year.

While the current market dynamics are uncomfortable, we are laser-focused on getting our current and future drug candidates to the patients who need them and trust that this commitment will create substantial value for our shareholders.

Thank you for joining us today, and I would now like to open the call to your questions. Operator?

(Operator Instructions) Our first question comes from Maury Raycroft of Jefferies.

I was going to ask a question on AAT. If you could talk more about the expectations for the upcoming regulatory interaction in the spring out of the Phase II 12-month biopsy readout, and how you're planning on updating investors after the meeting has completed.

Javier, do you want to address that?

Sure. As you know, we're working with Takeda, and Takeda is leading the interaction with the FDA from now on. So they will lead the next meeting, which is the end of Phase II meeting that will happen within the next few months. And that meeting, as you know, the key discussion point will be the design of the Phase III study that includes end point, sample size, dose. So that's the status with regard to regulatory.

We expect to have a decision and an agreement at one point in the second half of this year. The study in 2021, which was the dose range study for the dose-ranging component is completed, and it will be part of the package. As Chris said, the study will be completed in terms of the biopsy by July of this year.

So we have everything we need to have this meeting with the FDA. Takeda is doing a very good job and we're collaborating very closely. And so I think we will have more about this in the next call, for sure.

And also to be clear, as Javier said, the dose-finding portion of that study has read out. And given those data, Takeda has initiated interactions with the FDA. So that's already begun. They will -- we expect them to have a formal meeting in the next coming months.

And so we'll see where and how -- we'll see how that Phase III is designed. The whole -- we look forward to seeing the biopsy data sometime this fall from the SEQUOIA study. That, as you know, is blinded, so we haven't seen anything there. And that's just -- that's a bit of a wild card.

We look forward to seeing what those look like. And I think we have to focus on -- or Takeda has to focus on designing this Phase III right now. And then once we see those data from the SEQUOIA biopsy, we'll see if that affects their actions going forward with the FDA.

Got it. That's helpful. And will this -- will the upcoming end of Phase II meeting, will that determine what the endpoint is? And when you get the biopsy data will the -- could the endpoint change? Or I guess, how should we think about that?

Yes, exactly. The end of Phase II meeting will -- the goal is to have an agreement on the specific Phase III study design, which will include the primary endpoint, the duration, the dose and the sample size. So all the details about the Phase III study and also the end of Phase II will include [CMC] conversations. So everything needs to be in place to set the registration Phase III study right after that meeting.

Got it. Okay. And maybe just a quick question on DUX4. Just wanted to clarify if you're seeing any signals in the healthy volunteers prior to starting Part 2? Or are you just being conservative waiting for the chronic tox data?

So if you're asking about DUX4, that study has not yet started in the clinic. So that's still preclinical. We have not enrolled any healthy volunteers.

Yes. I just -- given -- in the prepared remarks, in James' prepared remarks, as he described, we learned from prior clinical studies that it's difficult to measure DUX4. And so given that, it made sense to us to maybe go a bit slower on the front end, so we can go faster on the later stages. And so we're waiting to see what those chronic tox data might look like before we design the study and initiate the study.

Our next question comes from Luca Issi of RBC Capital.

Maybe circle back on Maury's question earlier, maybe ask a little bit more directly. Is there a scenario where you can file early for [A118] in the second half of the year should the biopsy data check the box, given that you have breakthrough therapy designation? Again, any color there would be great.

And then maybe on hepatitis B, I think we've seen J&J obviously discontinue their collaboration with Brevera and Nordic. So wondering if that's just one-off or maybe if it reflects like a lower interest in the space for them more broadly. Also any color there would be great.

Sure. So let me take HBV first. We don't see any evidence that J&J is losing interest in HBV. To the contrary, they are working as fast as ever, and they're expanding these studies. It almost seems like every day into different patient populations and such. And so we see a strong interest in HBV.

I don't know what led them to terminate those other partnerships, but ours is going strong, and we still feel confident about our drug, and we feel confident about them as a partner in their commitment to the disease. So we're still guns ablaze in there.

With respect to AAT, it's hard -- I don't really want to speculate on what we could do with those biopsy data just because there's too many unknowns. Right now, we and Takeda together have to focus on negotiating with the FDA, on finding common ground with the FDA on what a Phase III study will look like, how large study it is, what the endpoints are, how long a study it is and the like.

We think we'll get there because the FDA has been quite collaborative so far. And as you point out, we do have breakthrough therapy designation, so we can have these discussions. So we're confident that we will -- or that Takeda will design an enrollable good study that will be beneficial to the ultimate drug, I think.

Now having said that, we look forward to seeing what those biopsy data look like. And once all of that is unblinded, we and Takeda together, we'll take a look at it. And it's certainly conceivable that should those data be extraordinarily compelling that it could lead to discussions with the FDA under our designation with them.

So it's too early to predict what those could mean, but we are certainly interested in looking at that, and we are excited to see what those data are, and we're excited to continue the conversations with the FDA.

Super helpful. And then maybe if I may, on capital expenditure. I think in the past, you guided $80 million to $90 million for fiscal 2022. However, it sounds like you're lowering that guidance, so wondering if you can give us a little more kind of quantitative color on that. That would be great.

Yes, we are lowering our guidance on capital expenditures this year. As I mentioned in our remarks, the 2 major projects had just recently started. So we might expect our CapEx to be something like 25% to 50% of what we originally estimated.

And as I said, those projects will move quickly at the end of this year, and we'll increase our capital expenditures in fiscal 2023.

Our next question comes from Madhu Kumar of Goldman Sachs.

This is Omar for Madhu. We have a handful of questions. So first, can you remind us of the cadence of this flow from the AAT program in 2022? More specifically, can we expect top line data at a medical meeting and disclosure of regulatory interactions?

Javier, do you want to address that?

So we will present the data in 2022 at ASO at the end of June and at the meeting in London. So that will be the -- I think at this point, the only presentation we may disclose when we completed 2021 analysis at the second half of this year.

And with regard to the regulatory introduction, within the next few months, we have end of Phase II meeting and the expectation is to start the Phase III this year. So that...

Yes. So I don't think we're -- we don't expect you to provide a blow by blow. But once we have alignment with the FDA on what that Phase III looks like, we'll be happy to, of course, disclose that.

And I wanted to also say that we're working on the manuscript for 2022. So we're in the final preparation here to submit that manuscript. So hopefully, that will be published this year.

All right. And then just maybe jumping the gun for the pulmonary R&D Day in a few weeks, but what does the clinical proof of concept look like to you for the lead lung programs?

James, do you want to address that?

Yes. Sure. I think we will be talking a lot more about that at the R&D Day end of the month. But in terms of what we're really looking for in both of these programs in Phase I is proof of target engagement, that we can knock down the targets and that we have a good dose response there.

So I think that's the most important thing we expect to get out of Phase I.

And we have circulating biomarkers there, so it will be much more straightforward to look at that with RAGE and MUC5AC than it was with ENaC.

And then if I could take 2 more questions then. How should we think about the upcoming Olpasiran end data and [Vivara] Lp(a) landscape? And then how far do you plan to take ARO-ANG3 and ARO-APOC3 in cardiovascular disease? Is there any plan to perform [CVOPs]?

Yes. So I'll take that one first. Look, we -- it is our plan right now to take ARO-ANG3 3 and ARO-APOC3 through to registration. We think those are potentially very important drugs, and we think that they will provide important new tools to cardiologists and lipid clinics. And I've said this in the past and it sounds -- I don't want to overstate it, but it really feels like those are important drugs. And so we are fully committed to those, and I think we're going to commercialize those.

The first question was with respect to Olpasiran. I don't know what else I can tell you on this. We haven't seen any data, so there's nothing I can accidentally tell you. We are waiting to see what those data look like, just like the rest of us -- just like the rest of you.

The Phase I data were compelling. That looks like it's a very potent drug candidate. I think the genetic validation with respect to that target is clear that drug -- or the drug candidate appears to be doing what we want it to do. It appears to be well tolerated.

And so we're excited to see those data. And we -- and to be honest, we fully expect for Amgen to push that into a pivotal study quite quickly.

Our next question comes from Ellie Merle of UBS.

Just a follow-up on the RAGE and MUC5AC programs. I guess, if you're starting to dose patients -- or midyear, how should we think about the timing to seeing initial circulating biomarker data, just given the potential to show proof of target engagement and delivery even -- albeit in small patient numbers?

And then I guess, just in terms of the C3 program, given that it seems like you're progressing through the cohorts in healthies. I guess, how should we think about timing to initial data there and what you're looking to see for dose selection, such as a particular degree or level of knockdown and C3 as you think about dose selection for patients?

Sure. Those are good questions. I can't give you terribly straightforward guidance on any of those. I will say with C3, though, I do expect that we will have some -- at least top line data this year.

I don't know when. I don't know what's going to be in it. We need to finish dose escalation in healthy volunteers before we start to look for patients. I don't know how long it will take to dose patients in that cohort, so it's really too early to give any guidance there.

But I do truly, though, expect that we'll have some data that we can talk about this year with C3. But that's at least in healthy volunteer, so far is enrolling quite well.

With RAGE and MUC, we haven't started dosing patients yet. That will be, as you point out, sometime in the middle of the year. And so similarly, it's a bit too early to guide when we might see some -- when we present some data.

I expect that we'll see data this year, but I don't know when we'll have enough to package up in something that will be digestible by the outside. My hope is that sometime in the third quarter, we'll have a much better idea about that, and I can give you more specific guidance.

Got it. And then just a follow-up on FSHD. Maybe just in terms of the decision to sort of wait for more of the chronic GLP tox data. I mean, I guess, was there anything that you saw preclinically that influenced this decision? Or if you could just maybe elaborate on any sort of preclinical data points that maybe prompted this.

Yes, sure. So the key driver of that decision is what we had described already on the call is that this -- we may not have a clear evidence of a PD effect or efficacy until the end of Phase II, really.

So we felt like it was important to derisk that. That could be -- I mean if you look back at the Fulcrum study and they're designed to be a longer study, so we really wanted to make sure that the tox profile would support such a longer study.

And our next question comes from Joel Beatty of Baird.

The first one is on the AAT program. Thinking ahead of the discussions with FDA on the Phase III trial design, how might that trial design be different from SEQUOIA? And is there any possibility that ends up looking pretty similar to what's already in SEQUOIA?

Well, let's revisit SEQUOIA. I don't know if you remember that we changed the design of the SEQUOIA. So the initial SEQUOIA adaptive trial design that has the objective to be a registration study is no longer in play.

We amended that protocol. We made a specific dose finding study. We enrolled 40 patients in 3 dose levels or placebo that is double-blind study. We have the initial analysis looking at the 7C protein up to week 16 for dose selection.

And as we said in the call, we will have the last biopsy for the 40 patients in June or July of this year, so the data will be available later.

So the Phase III registration study will not be similar to SEQUOIA. In SEQUOIA, we end up enrolling patients with F0, so no fibrosis because that was irrelevant with regard to the 7C level of the protein for those selections, which that was the primary PD marker for those selections. So it's going to be different. Of course, we need to get into the details later when we have a meeting with the agency, but it's not going to be similar to the SEQUOIA study.

Got it. That's helpful. And then on the 2 new lung programs entering the clinic midyear, what dose levels will you be testing? And how do those dose levels compare to the dosing that was used in the previous ENaC study?

We've [not] disclosed anything on starting dose for either of those programs at this point.

It's a good question. And what you're -- assume you're getting at is will we be -- do we expect to be using as much drug for these studies as we are for ENaC. And I think the answer is we do not, given the duration -- what I am looking for, say, the time and interval between doses.

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

Just a follow-up on the HIF2 on the oncology platform. There is discussion in the prepared remarks around the program and that clear target engagement had been demonstrated and that RNAi has a place in treating cancer, the improvements on existing constructs are needed to move forward.

I'm wondering if you can elaborate on this commentary. Specifically, give us an idea of when you could expect to have a next-generation compound or compounds in the oncology platform ready for an IND or CTA enabling studies. What improvements specifically would be expected to be part of this program compared to HIF2 program? And would the target be the same? Or could we also have new targets as part of the broader oncology platform?

Sure. So first -- so I'll take the easier part of that first, which is targets. It will be a different target. As we mentioned, the great news for clear cell renal cell carcinoma patients is that there are now good alternatives. There are now good-looking drugs that address the HIF2 alpha pathway. And so I think we'll make bets in other targets. There's a lot of other targets, I think, that we could go after.

Now with respect to timing, that's hard to know. I can't give you any guidance, certainly nothing this year. We were encouraged by the data. We are seeing knockdown. We can get into tumors. We can get knockdown in tumors. That's all good news.

But I think we can do a bit better. I think we can get deeper knockdown. I think we can get more durable knockdown. And so we're trying a number of different strategies to get there.

And so it's still a bit early to give you guidance on when we think we're back into the clinic. And also -- and I've said this publicly before, at some point, it would make sense for us to find a good partner for oncology. It's a difficult space. And it would be great at some point, if we will -- if we can find a partner to work with on new targets as well as on possible delivery strategies. So we're still in the first few innings of this game. But the good news is, again, as I mentioned, I do believe we are on the board. I think we've got a good first -- I think, to mix my metaphors, we've got a good first step at this platform.

Yes. That's helpful. And just a follow-up on ARCHES-2 program. First, can you discuss the level of confidence that the program will not have the same setback as mipomersen. And secondly, what would be considered home run data in ARCHES-2 and when the data is reported in the first half of 2023?

And then lastly, just how do we think about the clinical development path forward in mix dyslipidemia in Phase III and potential commercial launch trajectory if the drug is approved?

All right. Let's see. With regard to the ARCHES-2 program, will you repeat the first part of the question that I cannot miss it?

What are our expectations for mipomersen.

I think our position that we're going to have a very clean safety profile and a very clear pattern of efficacy. I mean, we already have a lot of data. Our Phase I study was over 100 patients with 4 different type of patient populations. And the results are very, very consistent.

So I don't see any possibility for a drawback of any type. They are -- so the data is already strong enough, so I feel very comfortable and confident about that.

And the Phase II study is going to read first quarter of fiscal year. So we will have a full answer. What we are doing in significant detail is working internally and with [KOS] to really understand what is the best path forward for both molecules.

When you think about mix dyslipidemia, we may talk about in more detail in the near future. But there's a lot of work going on to really understand who will be the patient population that might benefit from either of these 2 drugs.

The therapeutic profile are clearly different. And we believe that there are patient population that will uniquely benefit from either of these 2 drugs. But we are doing the work right now, but looking at the biology, the specific biology and as of the HDL biology, specifically.

We're also looking at databases and major clinical trials to understand where the residual risk for cardiovascular disease is in patients with mixed dyslipidemia.

And so there is a lot of work that we want to finish by the end of this year. So we are ready for a end of Phase II. We're ready to start to look at 4 companies and CROs, so forth to think about the major cardiovascular outcome trials.

So I think we are -- like I said, we're doing a lot of work right now to be ready to receive that Phase II data and have a plan to move forward going to the agency, plan our long-term strategy in our Phase II meeting.

Yes, yes. So we expect to have a cardiometabolic day later this year. And so I think we'll have -- we can really kind of spread out and talk about plans and what we see at that point.

But look, we're going to learn a lot with all of these Phase II studies over the next year. Plus, we're dosing an awful lot of patients, different populations. And I think we're going to learn a lot about how ANG versus APO will address various populations.

Having said that, at this point, the way we're thinking about these is as follows. For APOC3, we see a good relatively near-term opportunity in FCS population. We think we can get to market relatively quickly there and become a commercial entity, while we are doing larger, longer studies to support the use of APOC3 against severe hypertriglyceridemia.

We're also, as you know, doing studies in mixed dyslipidemia, and so that gives us optionality to maybe or maybe not do a very large outcomes trial for that compound.

On the ANG side, similar, we see an HoFH possible -- possibility there similar to the FCS opportunity, where we can get to market relatively quickly. And while we are doing larger studies, we do believe that a large outcome study would be interesting for ANG3 given what we've seen so far in the Phase I study.

And so that's our expectation at this point to go after the large dyslipidemia population with that drug. Again, we'll learn a lot over the next year plus with these Phase IIs. And so some of those opinions may change a bit. But right now, that's what we're thinking.

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

Congrats on the manufacturing facility and the formation of Visirna. Actually, if I could go back on this topic that Chris and Javier, that where you were commenting on. Can you just summarize for us what is the opportunity you see in sort of improving the perception of ANGPTL3 as a target?

And sort of, obviously, in light of what we have seen with other modalities and given the initial promise we had from the [Mendelian's] work, just as you're thinking about the cardiometabolic day would be helpful. I think if you could comment on where there might be some misunderstanding versus where maybe we need to learn something more. And then I have a follow-up question on the lung programs.

Yes. So as Javier said, our data were clear in our Phase I/II studies. We dosed a large number of patients. We saw consistent reductions in LDL. We saw a good safety profile. We saw consistent reductions in triglycerides.

And so whatever other folks saw with their drugs, it's interesting to look at, I suppose. But I think our [JCAHO] message is that our data were strong, and we expect that to continue. Now we'll have an awful lot of data this time next year. But given the data we have so far, we feel as bullish as ever on that pathway and on our drug.

Got it. And then as you start working on your Phase I studies for MUC and RAGE and deploy learnings from the ENaC program, and then just the RAGE study that I think is published at a conference about -- how are you thinking about the dose level versus knockdown?

It looks like you're working with some lower doses here with the newer targets. And -- but like with the ENaC, it was about 66% knockdown. But I think you're getting higher knockdown with some of these newer targets. So can you just remind us like how much knockdown we need with these newer targets? And then just maybe how far along you are with the chronic tox studies for these 2 new programs?

Yes. Sure. So we will be presenting data on both of those programs on MUC5AC and RAGE at the ATS Conference that starts next week.

And you're right, the -- we had previously described for ENaC about 66% knockdown in the rat, and we are seeing better knockdown than that with both siRNA targeting MUC5AC and RAGE in rodents, but also in nonhuman primates. And we'll be sharing some of those data.

Either that story is not only a matter of just lower dose levels, but lower overall exposure, so that the less frequent dosing intervals, as Chris alluded to before, are really important, I think, for both MUC and RAGE. Was there another piece of that question?

Chronic tox studies, how long have you gone there in the preclinical model?

The chronic tox has not yet started for either of those. We've completed the IND or CTA enabling tox, and that's complete for both MUC and RAGE.

And let's be clear on that. That's intentional. We want to see what the durability look like in humans before we do a chronic tox study in animals, just so we have a good idea about what sort of intervals we should be testing, right?

If we are dosing once a month, if we've seen durability in the last 30 days, that would suggest a certain kind of chronic tox study. If we are seeing durability the last 2 months or 3 months, that's another one. And so we'd like to get a flavor for what we're seeing before we start those studies.

Great. And then just one final question, high level. Has there any exploratory work done of delivering RNAi to the renal retina or broadly CNS as oligonucleotides have been also deployed? Have you guys done any work around that preclinical?

Yes. So we haven't talked about any other cell types that we are going after internally. But you've been around us long enough to know that we are always looking for new cell types. And so we've not disclosed what our next cell type is yet.

Our next question comes from Keay Nakae of Chardan.

Yes. With respect to HIF2 and going after additional oncology targets, I guess my question is why? Why do that as opposed to, just on your last question, other targets, let's say, outside the liver?

Yes. That's a great question. We're -- I don't mean to be flip, but we're -- when we can, we are more of an and company than an or company. And I think we've got the bandwidth to do both of those things.

I think your point is a good one. We've got really good leads in other cell types. And so if we were more bandwidth constrained, then one could argue that we should maybe slow walk the oncology a bit because we've got really good, exciting opportunities in other places.

But I think we can do both. And also, as I said in the prepared remarks, look, one of the reasons that we -- that the oncology program was important for us is that it gave us a chance to learn broadly how to deliver extra hepatically, and I think that will still be the case.

So it makes sense strategically there. But your -- the underlying point there is a strong one. Oncology is difficult. And so it's -- we would not like to be a solely oncology company. That's a risky endeavor. But it's something that I think we owe it to patients to investigate because I think we can do it.

We've got a good first step, as I mentioned, with our HIF2 alpha program. And I think that just with a little bit of tweaking, we might have something that could be usable across other tumor types.

Our next question comes from Mani Foroohar of SVB Securities.

You've always focused on speed into the clinic as one of your core competencies and sort of philosophy of the company. One of the challenges there is making sure that every target is appropriately vetted, every market opportunity actually exists.

So could you help us understand your rationale for why there's an opportunity for you in PNH? How you think about other complementary diseases at Alnylam and others with many times your resources and expertise in RNAi have faced real challenges?

And then secondarily, are we ever going to see the further safety data that we saw in terms of that safety signal that showed up in ENaC? Or do you intend to sort of hold that internally and not disclose it in more detail?

Yes. So I'll let James handle the PNH question. Quickly on the ENaC. So we're still considering a second -- or we're still working on a second-generation ENaC. And so I think until or unless we have that ready to go, it doesn't make much sense for us to focus on prior data. And so we'll hold off until we see where the ENaC 2 is going to go.

James, do you want to address Q3?

Yes. Sure. So with regards to PNH specifically, what interests us there is the data out of other companies with C3 inhibition specifically, that there's only one C3 inhibitor that is out there and that is approved and really showed significant improvement, even compared to C5 inhibition in the PNH population.

The issue with that C3 inhibitor is that it's a subcu infusion that's given at high doses every other day or, I think, almost daily in some circumstances. So that is limiting. An equivalent level of C3 inhibition with a single subcutaneous dose with C3 knockdown that lasts 3 months, I think, assuming it has the same inhibition of complement activity and assuming you get the same changes in hemoglobin, I think that's pretty compelling. So that's the argument for PNH.

Okay. That's helpful. And with the speed of which you're adding programs to the clinic, how should we be thinking about the tempo of OpEx maturation over the next couple of years?

You commented on timing for CapEx being pushed out to next year. How should we think about the scaling of OpEx? Should it be largely proportional to the size of these studies that you're enrolling? Will it be chunkier around the lipid study? Just kind of give us a sense of how we should model that between now and say, next 2 to 3 years.

Yes. So we gave guidance earlier in this year. We expect to update that at our call 2 quarters from now. We only look forward really 12 months in that forecast, so we'll have more to come on that.

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

Thanks, everyone, for joining us on the call today, and we'll talk to you next quarter.

This concludes today's conference. You may now disconnect.