Arrowhead Pharmaceuticals Inc (ARWR) 2021 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Arrowhead Pharmaceuticals conference call. (Operator Instructions)

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

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its fiscal 2021 third quarter ended June 30, 2021.

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 pipeline; and Kenn Myszkowski, our Chief Financial Officer, who will give a review of the financials. In addition, James Hassard, our Chief Commercial Officer; and Dr. James Hamilton, our Senior Vice President of Discovery and Translational Medicine, will be available during the Q&A session of today's 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, including, without limitation those with respect to Arrowhead's goals, plans and strategies are forward-looking statements.

These include statements regarding our expectations around the development, safety and efficacy of our drug candidates, projected cash runway, the receipt of future milestone and licensing payments and expected future development and commercialization activities. These statements represent management's current expectations 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 subsequent quarterly reports on Form 10-Q. Arrowhead disclaims any intent and undertakes no duty to update any of the forward-looking statements discussed on today's call.

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. The fiscal third quarter and the period since our last conference call has been incredibly busy for Arrowhead. We made important advances in several of our development programs. This includes discovery stage programs and early, mid and later-stage clinical programs. It also includes programs from existing partnerships as well as a new business development transaction.

As a platform company, there are a few areas of critical importance where we focus our attention. First, we need to always push the boundaries of what is possible and make our TRiM platform better. Second, we need to expand the early-stage pipeline rapidly and efficiently with new clinical candidates as this will be an important source of growth in the future. Third, we need to move our mid- and later-stage pipeline programs through clinical studies as it get closer to our goal of bringing important new medicines to patients without adequate treatment options. And lastly, we need to selectively use partnering to expand the reach and maximize the value of our TRiM platform and bring in non-dilutive capital that helps to fund our internal development.

I think we're doing well in all these areas. Let's take a moment to briefly review some key events in the last quarter that are good examples of this.

For our discovery and early-stage clinical pipeline, we had a very productive quarter. We completed discovery and optimization work on 2 new pulmonary programs and nominated them both as clinical candidates. They are now in the IND-enabling stage, which includes GLP toxicology studies and manufacturing of drug product for clinical studies. We have not yet disclosed the gene and disease targets, but we will be talking more about these programs later in the year.

We also presented very promising preclinical data on ARO-DUX4, our first muscle-targeted program being developed as a treatment for patients with facioscapulohumeral muscular dystrophy, or FSHD, at the 28th Annual FSHD Society International Research Congress. The data showed that the TRiM muscle delivery platform can achieve functional delivery to various types of skeletal muscle and achieve deep, durable and dose-dependent knockdown target genes.

In addition, ARO-DUX4 improved multiple measures of FSHD like muscle phenotype in relevant preclinical animal models. As DUX4 expression is recognized as the cause of muscle pathology in FSHD patients, Arrowhead believes that the selective targeting and knockdown of DUX4 using RNAi may prevent or reverse downstream myotoxicity and lead to muscle repair and improvement in muscle function in patients. There are currently no effective treatments, specifically for FSHD, so patients need new therapeutic options that address the root cause of the disease.

We have been pushing aggressively toward the clinic with ARO-DUX4 as well as the 2 new pulmonary candidates we nominated this year. We expected to file CTAs for all 3 of them by the end of the year, but securing timely slots at CROs for IND-enabling toxicology studies has been challenging, so scheduling on the CTAs will be pushed into the first half of next year. That is unfortunate, but we have seen this become more of a bottleneck in the industry since the beginning of the pandemic.

We have continued work on a number of other early programs, and I'm pleased to announce a previously undisclosed target. We recently nominated ARO-C3 as a hepatocyte-directed candidate against complement C3. Overactivation of the complement cascade is thought to be causative of a number of diseases, including paroxysmal nocturnal hemoglobinuria and C3 glomerulopathy and complement-mediated injuries involved in many other conditions, including IgA nephropathy as well as many other renal, vascular, hematologic and neurologic conditions.

Complement C3 is a central node in all 3 of the complement pathways, including the classical, lectin and alternative pathways of complement activation. And it has recently been shown that inhibition of C3 can be both safe and effective in the treatment of complement-mediated diseases.

We have a strong track record in TRiM-enabled hepatocyte-directed candidates, including ARO-HBV, ARO-LPA, ARO-AAT, ARO-ANG3, ARO-APOC3 and ARO-HSD. Clinical data from these programs gives us confidence that positive nonclinical data from the ARO-C3 may translate well in humans. We believe that an siRNA capable of substantially reducing C3 levels for 3 months or more could be the modality of choice for C3 inhibition, and we expect to file CTA for ARO-C3 by the end of this year.

During the quarter, we also announced positive interim data for 2 of our early-stage clinical programs, ARO-HIF2 and ARO-HSD. I'll start with ARO-HIF2, which is our first tumor-targeted program being developed as a potential treatments for patients with clear cell renal cell carcinoma, or ccRCC. To date, investigational ARO-HIF2 has been generally well tolerated at doses of up to 525 milligrams weekly. The study has now progressed to a dose of 1,050 milligrams weekly, which is currently enrolling and dosing patients.

We believe that in the first 2 dose cohorts, ARO-HIF2 is showing clear signs of meaningful target engagement and potentially some early signs of efficacy in at least one patient. Specifically, the HIF-2 alpha protein H-score was assessed via immunohistochemistry. 9 of 17 patients had tumor samples that could be evaluated, and 7 of those 9 demonstrated reductions in HIF-2 alpha protein H-scores. These reductions ranged from minus 9% to minus 82% with a mean reduction of minus 48%. In addition, one subject had a partial response with approximately 65% tumor shrinkage and 5 subjects had a best response of stable disease. We think these early results in a heavily pretreated population are encouraging for ARO-HIF2 and our tumor-targeted platform broadly.

We also presented positive interim data for ARO-HSD, being developed as a potential treatment for patients with liver diseases, such as NASH, at the EASL International Liver Congress. ARO-HSD was well tolerated in healthy volunteers given a single dose at 25 milligrams, 50 milligrams, 100 milligrams or 200 milligrams and in 5 patients with suspected NASH given a 100-milligram dose of ARO-HSD on days 1 and 29. All 5 patients with suspected NASH showed a strong pharmacodynamic effect as measured by liver biopsy at day 71. HSD17B13 protein was reduced by 92% and 97% in 2 patients, while the other 3 patients' day 71 measurements reduced below the lower limit of quantitation.

Importantly, ALT showed a mean reduction from baseline of 46%, with all patients showing reductions ranging from 26% to 53%. We believe that ARO-HSD is the first investigational therapeutic to demonstrate robust inhibition of hepatic HSD17B13 mRNA and protein expression. We are also highly encouraged to see ALT levels drop significantly following just 2 doses of ARO-HSD.

In addition to progress on our early-stage pipeline, we also achieved some important milestones for our mid- and later-stage pipeline. I'll start with our cardiometabolic programs, ARO-APOC3 being developed as potential treatment for hypertriglyceridemia and ARO-ANG3 being developed as a potential treatment for mixed dyslipidemia. We recently started 2 Phase IIb studies, one for each program. We intend to initiate 4 or more studies across the 2 programs, including a Phase III study. Javier will give more details about the studies that have already started dosing in a few minutes, but we believe the studies together will give us a robust picture on the pharmacologic activity of each medicine in various target patient populations.

We are intending to identify the optimal dose and dose intervals to enable us to move confidently into multiple Phase III studies. In addition to our cardiometabolic programs, we had multiple important events in the last quarter for ARO-AAT, also known as TAK-999, being co-developed with Takeda as a treatment for the rare genetic liver disease associated with alpha-1 antitrypsin deficiency.

First, we presented additional positive interim 48-week liver biopsy results at the EASL International Liver Congress. These results demonstrated that ARO-AAT treatment led to rapid improvements in multiple measures of liver health, including fibrosis, with substantial and sustained reductions in the level of mutant AAT protein. Mutant AAT protein has been identified as the cause of progressive liver disease in patients with alpha-1 antitrypsin deficiency. ARO-AAT treatment was generally well tolerated after up to 1 year of treatment.

This is very important data and suggests to us that the drug is doing what it is designed to do, and that removing the mutant AAT protein can give the liver a chance to begin the healing process, even when intervening in patients with late-stage liver disease. We and our partners at Takeda were thrilled to see these results, and we have received similar responses from physicians and others in the alpha-1 treating community.

We also fully enrolled the ARO-AAT Phase II SEQUOIA study with the 40th patient being dosed recently. Combined with the various cohorts in the open-label 2002 study, we will have paired biopsies from approximately 50 patients receiving various dose levels and various treatment durations. Lastly, for ARO-AAT, we are granted Breakthrough Therapy designation by the U.S. FDA. ARO-AAT was also previously granted Orphan Drug designation and Fast Track designation from the FDA and Orphan designation from the European Commission. Our goal is to expedite the development path of ARO-AAT, and each of these important designations provide potential ways to achieve that. We will work with regulatory authorities and our partners from Takeda to identify the best path to bring this important drug to patients quickly.

Now moving on to progress that we've made with partnering. As I mentioned, we believe a platform company should use partnering selectively to expand the reach and maximize the value of the platform technology and to bring in non-dilutive capital that helps to fund internal development. This is a key component of our business strategy and an area where we've seen important recent progress.

The collaboration with Janssen, which was executed towards the end of 2018 for ARO-HBV against chronic hepatitis B infection, included an option on 3 additional programs. During the previous quarter, Janssen delivered written notice of its intent to exercise its option right for the first of those programs, ARO-JNJ1. This earned Arrowhead a $10 million option exercise fee and signals Janssen's intent to move forward with clinical studies.

Also during the quarter, we announced a global collaboration and license agreement with Horizon Therapeutics for ARO-XDH, a previously undisclosed discovery-stage candidate being developed by Arrowhead as a potential treatment for people with uncontrolled gout. Arrowhead received $40 million as an upfront payment from Horizon and is eligible to receive up to $660 million in potential development, regulatory and commercial milestones and is further eligible to receive royalties in the low- to mid-teens range on net product sales. Horizon will receive a worldwide exclusive license to the therapeutic and will be wholly responsible for clinical development and commercialization.

This is a great example of an attractive partnering opportunity. It expanded the reach of our technology to an area that we had not intended to enter independently and brought in non-dilutive capital. It also brought in needed expertise in the gout field to help understand the disease, the clinical path, the tremendous unmet medical need and a dominant player in the space with an existing commercial organization. For all these reasons, we thought Horizon was the ideal partner and the deal made perfect sense for both of our companies. We look forward to working closely with Horizon as we advance this potential new therapy for patients in need.

As you've heard, this was a busy quarter with lots of exciting events. However, drug development doesn't progress in a straight line and invariably there are surprises. Sometimes these surprises lead to leaps forward, such as the faster-than-expected liver healing in our ARO-AAT program, and sometimes these surprises can be more unwelcome. We experienced the latter in the ARO-ENaC program, our candidate being developed as a potential treatment for cystic fibrosis last quarter.

To review, we voluntarily paused the clinical study of ARO-ENaC after receiving a preliminary update from an ongoing chronic toxicology study in rats that contained unexpected signals of local lung inflammation. Because of this preliminary update, we instructed investigators to pause new screening, enrollment, and any further dosing of investigational ARO-ENaC, pending additional data from the ongoing chronic rat toxicology study and an additional ongoing chronic primate toxicology study.

We have not seen any concerning safety or tolerability signals in people enrolled in the ARO-ENaC1001 study. However, we place the safety of patients that participate in our clinical trials above all else. So we will continue to keep the ARO-ENaC clinical study on pause for now. We do not yet have full data back from the toxicology studies nor from additional studies that we are conducting internally, so we do not yet know the extent of the findings. We are investigating this fully and are still in the information gathering stage. We should know more in the coming weeks and months, and we intend to provide an update when we are able.

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 an update on our clinical studies and provide details on the design of a couple of our newest studies.

First, I will discuss ARO-HIF2, which is designed to inhibit the production of HIF-2 alpha to treat clear cell renal cell carcinoma, or RCC. We were encouraged by the positive interim results from the first 2 cohorts of AROHIF21001, a Phase Ib dose-finding clinical study in 3 cohorts with advanced clear cell RCC. We are currently enrolling cohort 3, which is designed to include up to 10 patients who will receive a weekly IV infusion of 1,050 milligrams of ARO-HIF2.

The study is designed to evaluate the safety of ARO-HIF2, to determine the recommended Phase II dose and to assess pharmacokinetics and preliminary efficacy based on RECIST and post-dose tumoral expression of HIF-2 alpha and HIF-associated genes. Patients will continue to receive weekly ARO-HIF2 indefinitely until they experience disease progression, have a complete response or they discontinue. Our intention is to share additional interim data from this study, including data from cohort 1, 2 and initial results from cohort 3 at an appropriate medical meeting in the future. We have not yet selected the intended meeting.

The next program I want to detail is ARO-HSD, our investigational candidate for the potential treatment of alcohol and nonalcohol related liver disease. We think the interim data we presented at EASL was highly encouraging. And in fact, our presentation was highlighted in the EASL Official Scientific Press Conference on NAFLD/NASH. It was exciting to see ALT levels drop significantly following just 2 doses of ARO-HSD. We expected a high level of target gene knockdown because our TRiM system has been extraordinarily consistent across our different liver-directed programs. But the improvement in ALT at this early time point was a very welcome surprise.

These data and the strong genetic evidence of HSD17B13 as a potential therapeutic target provide us with increased confidence as we design further clinical study for ARO-HSD. We are thinking about innovative designs that seek to answer key questions about the medicine, the disease and the mechanism of HSD17B13 inhibition, and what early signs of improvement may look like. We're approaching this in a similar way to how we approached ARO-AAT. In the meantime, we're still conducting the Phase I/II in patients with NASH or suspected NASH, and we're happy to report that the study is fully enrolled.

As Chris mentioned, we started dosing in 2 Phase IIb studies of our cardiometabolic candidates, ARO-APOC3 and ARO-ANG3, during the last quarter. I will give a brief description of these study designs, so you all can think through potential timing. We intend to initiate additional studies shortly, and we will provide details on the design of the additional studies when they start.

For ARO-APOC3, we initiated AROAPOC3-2001, a double-blind, placebo-controlled Phase IIb study to evaluate the efficacy and safety of ARO-APOC3 in adults with severe hypertriglyceridemia, or SHTG. Three dose levels of ARO-APOC3, 10 milligrams, 25 milligrams and 50 milligrams, will be evaluated against placebo in participants who have mean fasting triglycerides of greater than or equal to 500 milligrams per deciliter at screening. A total of approximately 300 participants will be enrolled in the study.

All those cohorts will enroll in parallel with 100 participants per dose cohort randomly assigned in a 3:1 ratio to receive ARO-APOC3 or placebo. Each participant will receive subcutaneous injection on day 1 and week 12. The duration of the study is approximately 54 weeks from screening to the week 48 end-of-study examination. The primary objective of the study is to evaluate the safety and efficacy of ARO-APOC3 in adults with SHTG and to select a dosing regimen for later-stage clinical studies in this patient population.

For ARO-ANG3, we initiated AROANG3-2001, a double-blind, placebo-controlled Phase IIb study to evaluate the efficacy and safety of investigational ARO-ANG3 in adults with mixed dyslipidemia. Three dose levels of ARO-ANG3, 50 milligrams, 100 and 200 milligrams, will be evaluated against placebo in participants with mixed dyslipidemia who had the following at screening. LDL-cholesterol greater than or equal to 70 milligrams per deciliter or a non-HDL-cholesterol greater than or equal to 100 milligrams per deciliter and mean fasting triglycerides between 150 and 500 milligrams per deciliter.

A total of approximately 180 participants will be enrolled in the study. All dose cohorts will enroll in parallel with 60 participants per cohort randomly assigned in a 3:1 ratio to receive a subcutaneous injection of ARO-ANG3 or placebo on day 1 and week 12. 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 study. The primary objective of the AROANG3-2001 study is to evaluate the safety and efficacy of ARO-ANG3 in adults with mixed dyslipidemia and select a dosing regimen for later-stage clinical studies in this patient population.

I will now turn the call over to Ken Myszkowski, Arrowhead's Chief Financial Officer. Ken?

Thank you, Javier, and good afternoon, everyone. As we reported today, our net loss for the quarter ended June 30, 2021, was $29.9 million or $0.29 per share based on 104.1 million fully diluted weighted average shares outstanding. This compares with a net loss of $13.6 million or $0.13 per share and 101.8 million fully diluted weighted average shares outstanding for the quarter ended June 30, 2020.

Revenue for the quarter ended June 30, 2021, was $45.9 million compared to $27.4 million for the quarter ended June 30, 2020. Revenue in the current period primarily relates to the recognition of a portion of the $300 million upfront payment received under our collaboration agreement with Takeda as well as a $10 million option exercise payment received from Janssen for the ARO-JNJ1 program in May 2021.

Revenue for the Takeda agreement will be recognized as we continue to work toward completing our performance obligations of managing clinical trials in process and certain manufacturing-related services. The remaining $230 million of revenue associated with Takeda collaboration is anticipated to be recognized over approximately 2 years. Any additional milestones achieved with our collaboration partners would be additive to this projection. Revenue in the prior period primarily related to the recognition of a portion of the milestones received from our license and collaboration agreements with Janssen. Our performance in revenue recognition under the Janssen agreement for HBV is substantially complete.

Total operating expenses for the quarter ended June 30, 2021, were $77.8 million compared to $43.3 million for the quarter ended June 30, 2020. This increase is primarily due to increased candidate-specific and discovery R&D costs as the company's pipeline of clinical candidates has both increased and advanced.

Net cash used by operating activities during the quarter ended June 30, 2021, was $29.6 million compared with net cash used by operating activities of $33.4 million during the quarter ended June 30, 2020. The key driver of this change was the $10 million option exercise payment received from Janssen for ARO-JNJ1 program in May 2021. Excluding any potential milestones from our collaboration partners, we estimate our cash burn run rate to be $50 million to $60 million per quarter.

Turning to the balance sheet. Our cash and investments totaled $644.7 million at June 30, 2021, compared to $453 million at September 30, 2020. The increase in our cash and investments was primarily due to the upfront payment received from Takeda, offset by cash used by operating activities. In July, we also collected the $40 million upfront payment due under our recent collaboration with Horizon. Our common shares outstanding at June 30, 2021, were 104.2 million.

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

Thanks, Ken. As I mentioned, we think we're making strong progress across the spectrum of activities required to be a successful platform company. We are innovating on the platform and pushing the bounds of what our TRiM technology can do. We are rapidly and efficiently feeding the early-stage pipeline with new candidates that may be engines of growth for Arrowhead in the future. We are moving our mid- and later-stage clinical programs progressively closer to our goal of bringing important new medicines to the patients who need them. And lastly, we are selectively and responsibly using partnering and business development when it makes sense to do so. This last quarter saw important intangible progress in all these areas.

Thanks again for joining us today. I would now like to open the call to your questions. Operator?

(Operator Instructions) Your first question comes from the line of Maury Raycroft from Jefferies.

And congrats on the progress. I was wondering for the bottleneck for the CTA filings for DUX4 and the 2 pulmonary candidates, can you comment on whether this has anything to do with waiting for additional preclinical data from ENaC?

It does not. It has to do with just finding slots of CROs. There is -- we talked about this, I think, a few conference calls ago that since the pandemic, there's been a nonhuman primate shortage. And also these pulmonary studies are a bit more difficult to do because there's not many CROs that do them. And so given all that, we just -- we've just had a bit of a bottleneck. And so we'll get these done. It's just that we're going to get them done a quarter or 2 later than we had hoped.

Got it. Okay. And then also just wanted to check on if you're providing a status update on how the ENaC NHP study is going? And you mentioned you may know more in the next few weeks and months. Is it fair to assume that there could be an update on this in 4Q then? And in the next update, are you going to provide some of the clinical data that you saw?

Yes. So I just don't know -- so with respect to the tox data, I just don't know when we're going to have better clarity. We're not going to have the NHP data till towards the end of the year. And so that will be a black box until then. We haven't -- that's still ongoing. And so there's just no data there yet. We don't have final reports for the rodent piece of that, that's still ongoing. We just got an interim update, which caused us to press pause. And now we're doing some other internal experiments.

And so I can't give you good guidance on when we're going to know something. We're working on it right now. And I think beyond that, it doesn't make sense for us to talk about the clinical program until we have a better idea about where this is going to go and how quickly we might be able to get back on track if, in fact, that's going to work out.

Okay. That makes sense. And last question for me is just for ARO-HIF2, the first data on the refractory RCC looked good. At this point, do you have more insight into the relationship between knockdown and the related tumor activity? And how do you think the activity could change at a higher dose?

So we don't -- so with respect to the first question, we don't yet have any more information. With respect to the second question, I don't know. We're seeing this only -- we're looking at this in real time, and we haven't seen data from a higher dose yet. So we'll see where that goes. What was encouraging to me at least was that it appears that we're on the board here. We're getting good target engagement. It appears that we're getting knockdown. And so now let's just see where this goes.

I don't -- I would not expect a rapid sort of physiological response, if you will, with respect to tumor shrinkage and such through this pathway. That may take a bit longer. So the fact that we are seeing right now some knockdown suggests to us that our platform is working. And so now we just need to see how that's going to go going forward.

Your next question comes from the line of -- from Alethia Young of Cantor.

This is Nina on for Alethia. We are wondering if you could share more on your DUX4 program and how it compares to competitors? And also if there's any read-through from the Phase IIb results for losmapimod, which missed on the primary endpoint and change of DUX4?

Yes. So I'll let James comment on that. I don't -- well, I'll let him comment on that. I don't know that there's read-through with the other one because it's a different compound entirely, of course. But James?

Sure. Maybe I'll take the first question first about the -- how we compare with the competing programs. There's not a whole lot out there with regards to the other oligo programs. The targeted antisense programs are all preclinical, and there's really not much data available. And so the primary difference would be the way that we target the muscle cells that we use, a peptide-targeting ligand versus their antibody or antibody fragment approach. So that's -- I think that's the main difference as far as comparing. There's really no way to compare efficacy or knockdown levels as the other competing programs have not shared any data at this point.

And then the other question was around the fulcrum read-through. Is that right? Yes, it's tough to say. I mean it's a very different compound, different mechanism. I think they did highlight the challenges associated with a biopsy study in this population and with this specific target, where there's this sort of stochastic expression of the target that may be difficult to catch or to monitor, if you will, with biopsy. And so we will look at downstream gene expression, but we'll likely also look at other parameters that might help us select a dose for later-stage clinical studies.

This is Javier. I wanted to add another comment about this data, which I think that despite the biomarkers, the clinical data in some aspect was positive. So I think the target still is in a good place because if you look at the PRO and the physical function, there is a number of those that were statistical significant. We don't know how clinical relevant those changes is, and we're looking at that to try to see if some of those changes correspond with the minimal relevant changes. And that, I think, will help us to understand this.

So I think there is a mix of results here despite the biomarker now being positive, there is clinical signs of potential improvement in this patient population, which I think is reassuring for the pathway.

Your next question comes from the line of Esther Rajavelu from UBS.

I have 2. One on ENaC. So it's historically been a tough target, but what are some takeaways from the tox signals that you're seeing? Is it specific to the lung? Or is there evidence of exposure in other tissues? And what would your considerations be if you find that the tox is limited to the lung?

So let me just say with 2 words, and then I'll hand it over to James on this. The tox that we saw or that we heard about, again, we haven't had a final report on this rat study. And so we have a limited data, but what we understand is that it was local lung inflammation. We don't see -- we didn't see broader issues. We don't know if that's species specific because, as I said, we don't have the NHP data yet. We don't know if it is sequence specific or is target specific. There's -- we are really just starting to get into this. James?

So what was the other part of the question?

Well, the other part of the question was, if you sort of consistently see that the tox is -- when you get the NHP data, if you see the tox is limited to the lung, would it -- I mean how would you interpret that? Is it -- would it -- is that a good thing? Because you know the drug is getting to the lung, and you just have to find another target that works maybe in a different indication? Or do you -- or would you have to go back and change the chemistry?

Well, if the -- the tox being limited to the lung, as Chris has stated, is not surprising. I mean the systemic bioavailability with inhalational oligos is not that great. So it's not unexpected that we would only see tox in the lung. And I think it depends on what we would see in the final results from the rat and then the NHP study in terms of what the toxicity is and at what dose levels and dose frequencies. There -- again, depending on the results, and we don't have these results yet, there may be an opportunity to resume the study as is or to amend to look at different dose levels, different dose intervals.

Right. And to follow-on to that, remember that we dose this -- that we can dose this reasonably high. But also, we dose it relatively frequently. And so to James' point, or as he alludes, if we are -- if this appears to be clean in the NHPs, it could be that we have an opportunity just to space out the dosages a bit more. That's all speculation. Let's see where the data come in, and we can go from there.

Got it. And then on AAT, are you still on track to revisit the registrational trial design with the FDA? I think you had said in the third quarter, late summer or thereafter.

Javier?

You say the initiation of the Phase III study?

The introduction itself, it's ...

Yes.

The introduction, yes. So as you probably know, we've been granted with breakthrough designation by a week or 2 weeks ago, and we're already working on the briefing documents to engage in the first, what is called, multi-disciplinary meeting, yes, in the Q3, Q4 time frame.

Your next question comes from the line of Joel Beatty from Baird.

Congrats on the progress. A couple of questions on the HIF-2A program. The first is what's the dose response in reduction of HIF-2A seen in -- among the 2 doses in that study? And then I have a follow-up.

James?

Dose response between the first 2 cohorts? Yes, I think we're still in the process of dose escalating and analyzing all the data from the second cohort. A lot of those patients are still on drug. So I think it's too early for us to really give a clear answer on dose response.

And a further complicating factor is that -- I may get the numbers wrong, so correct me if I'm wrong. We had -- of 17 individuals, I think we only had usable biopsy material from 9 of them. And so it may be difficult to know if we have dose response at this point.

The only thing I would add is that we did see knockdown in both doses.

Yes. Good point.

So that's ...

In the press release, we were just giving kind of overall top line on this. And so our intent, we said this in the prepared remarks, is to present a more full data set at an appropriate medical meeting, which would include the top dose level as well. So stay tuned on that.

Yes. Got it. That all makes sense, and its helpful. So I guess, just one follow-up on that. You mentioned how there's one responder with a fairly strong response. Are you able to share anything about the HIF-2A reduction that was seen in that patient?

Yes. Not at this time. I think we can share that when we present the full data set at an upcoming medical meeting.

Your next question comes from the line of Salveen Richter from Goldman Sachs.

This is Sonya on for Salveen. We were just wondering, like beyond the pulmonary target and the muscle target, what other extra-hepatic issues would you be looking to go into on the forward?

So we have active programs in a number of areas. We have not disclosed other areas that go after -- or that we're working on. So yes, just stay tuned on that. Look, we have mentioned in the past, though, that CNS clearly is a target-rich environment. So it's a place that we want to go at some point. We are not there yet, but there's a number of tissue types that we're looking at.

Your next question comes from the line of Luca Issi from Royal Bank of Canada.

This is Lisa on for Luca. Just one here on A1AT. Can you give us some directional colors here on -- more with the ongoing dialogue with the FDA? Now that you have the breakthrough designation, is there may be a scenario where the data from the 2002 study and the first 36 patients from SEQUOIA will be sufficient for accelerated approval? And I also have a follow-up on ENaC.

This is Javier. Yes, we're thinking about all of those options. Right now, we would need to focus on the first interaction. And typically, this first interaction, as I said, it's a multi-disciplinary meeting. We will touch upon different aspects of the filing process, discuss the Phase III study design, the approvable endpoint and the time to filing. It's going to be critical, but it's not a one-stop conversation, it's a process. So it's a good call, and we will, of course, entertain that thinking and the potential step forward.

And we've had really, so far, limited interactions with the FDA and that's particularly with the current division. But our interactions have been quite positive and collaborative. They clearly appreciate that this is an unmet medical need. And I think that they are really interested in working with us to get this to patients who need it. And so we haven't had -- so we're really excited to have this breakthrough destination. So we can sit down and have these more in-depth discussions.

And to your point, breakthrough designation essentially opens the path to an accelerated approval based on a [surrogate] likely to translate into clinical benefit. And that's precisely what we will discuss. The next time around, that was a significant component of the breakthrough designation briefing document. So yes, we're going to talk about this throughout the process.

Great. That's helpful. And then just one on ENaC. Just wondering if you can talk about the doses at which you have seen the tox result in rats and how those doses scale into human? Just trying to figure out here whether the signal -- the tox signal seen in rats was seen at maybe supratherapeutic doses or at doses that scale within the 40 to 180 mg range that are being tested in humans?

Sure. And I appreciate that question. But look, it is -- it has been our policy not to talk about tox data, in particular, because we don't even have a final report here. We've just been given a small synopsis about part of a rat study. We don't even know anything about the NHP. So we're unable to give you any more color on that at this point.

Your next question comes from the line of Patrick Trucchio from H.C. Wainwright.

Just a couple of follow-up questions on the C3 program. First, can you discuss what, if any, potential advantages there are targeting C3 rather than C5? And secondly, do you know in which indication or indications the C3 program would initially focus on when the clinical development could begin? And is this a program you would bring into clinical development on your own or would you seek a collaboration partner?

I will answer the last of those questions, and then I'll hand it over -- hand the rest over to James. So we do not have plans to seek a partner right now for this program. Look, that may change in the future. But right now, we are happy to take this forward. This is directly in our wheelhouse in terms of preclinical development. This is a hepatocyte-directed construct. We feel good about going into clinic. And so let's see what the data look like, and then we can make a decision on partner versus non-partner at some point in the future. James?

Sure. I'll take the first part of the question that I think was about C3 versus C5. So C3 in the complement cascade is a central node that is involved in all 3 different components of that pathway; the lectin, the alternative and the classical pathway. So if you can inhibit C3, you can really take out everything that's downstream of C3. And so the effects should be broadly applicable to various complement-mediated diseases.

Now specifically to 2 interesting indications, PNH and C3 glomerulopathy, that Chris mentioned during the earlier remarks. PNH is a disease that's been reasonably well treated with C5 inhibition. However, there is a component of that population that is refractory to treatment due to extravascular hemolysis that's primarily driven by C3. So that residual -- population with residual anemia that's refractory to C5 inhibition could be specifically treated with -- potentially treated with C3 inhibition. There is another population, the C3 glomerulopathy patients, where their disease is really driven by excess C3 activity and deposition of C3 fragments in the glomeruli. So that's really a C3-driven disease.

Beyond those, there are other conditions that are -- where the disease is complement-mediated, maybe not as specific to C3 as those other 2 conditions but complement-mediated. And we think that C3 inhibition may have applicability in those other complement-mediated diseases. So I think that covers maybe both the first and the second question about C3 versus C5 as well as the other indications.

And one other question was about when we can enter clinical development? By the end of the year. We'll be filing CTA by the end of the year.

Got it. That's helpful. And then just a follow-up on the gout program. Can you tell us where ARO-XDH would fit in the gout treatment paradigm and the potential cadence of the $660 million in potential milestones from Horizon? And to the extent that you could comment when the program could be expected to enter clinical development?

We can't tell you too much about that, about any of those actually. So we did not split out what the -- how that $660 million of potential milestone payments could be achieved.

With respect to how this could fit into a clinical paradigm, this is one of the reasons we chose Horizon as a partner. This is their business, and we'll be working closely with them. But ultimately, this is their decision. And so I don't want to step on their toes and tell you something that we believe when this is really going to be their business.

And with respect to what you asked, when they're going to get into the clinic, we don't know the answer to that. This is still an early program. We're just working on it right now. And so it's -- we still have a ways to go.

Your next question comes from the line of Ted Tenthoff from Piper Sandler.

I appreciate all the updates. And I just wanted to get a sense a little bit more on the new pulmonary targets. What are gating factors? And is there anything you expect to learn from the ENaC program that could impact those programs going into the clinic?

Yes. So that's a good question, Ted. I don't know the answer to that. It's still just too early. We don't know what's going on with -- or what happened in those rats in the ENaC program. And so until we have more information, I just don't know how that might read on future programs. I can tell you that it's not slowed us down. This is still, we think, a big opportunity for us, and we're still moving as quickly as we can.

We are excited about these 2 new programs. We haven't talked about the gene targets. We haven't talked about the disease areas. I expect that we will maybe later this year. We were disappointed that we couldn't get the slots that we wanted to move this into the clinic this year, but that's just the way the world turns right now. And so we look forward to getting this in the clinic in the first half of next year.

I will say, though, that what we think we have seen -- because again we've only seen a small amount of data from the rat study. But what we have seen there has caused us to do a bit more work while we're waiting just internally on chronic studies. These are non-GLP tox -- again, these are just so we understand a bit more internally on the other programs.

It makes a lot of sense. And with respect to ENaC, with the patients who have already been dosed, how do we anticipate hearing about that data? I know you're not dosing anyone going forward, but is that going to be a substantive enough data set that it's going to be informative? And is that something you would share publicly?

Yes. And again, I'm sorry, I can't give you a definitive answer on that because we don't know what's going to happen with that program. And if we can restart it, we don't know when we can restart it. So until we have more information, we just would rather not give any sort of guidance one way or the other.

Yes. Perfectly understand. Totally understand. Awesome, Chris. Thanks so much the update and really a lot of great progress this year. So I'm excited for the back half.

Your next question comes from the line of Keay Nakae from Chardan.

Yes, Chris, just following up on the new lung programs. So what are the similarities between the construct for those versus ENaC? I mean, obviously, you're going to have a different sequence for the targeted gene. But are you using the same targeting ligand? And so help us try to better understand what the potential read across of risk is from the ENaC tox?

Right. So we're using the same targeting ligand, as you say, different sequences. I would expect that we'll be using less material in the next 2 because at least in animal studies, they both appear to be more potent than ARO-ENaC. Is that important? I don't know. But I believe that's -- well, I know that's the case for animal studies, and we'll see if it translates into humans. And so it's -- again, until we have more data, it's just too early to speculate on how or if that -- what we saw in the chronic tox in rats may translate to other sequences.

Okay. And then just for HIF, the biopsies that you received and the fact that some of them weren't usable. Can you just further characterize that? And how do we think about the risk there going forward of not being able to get good data to do your assessments?

James?

Yes. So far -- maybe I'll make one comment about the study design. The protocol allows us to enroll up to a sufficient number of patients to get enough biopsies that we think are adequate paired biopsies to make -- to do our analysis. And as was described in the press release, the biopsy samples are not always analyzable, but so far in the first and second cohort and so far in the third as well, we've been able to get enough biopsy samples to do the work that we need to. I hope this answers the question.

Your next question comes from the line of Mayank Mamtani from B. Riley.

This is Sahil Kazmi on for Mayank. Maybe a brief one on HIF-2. Could you provide any color on kind of how the enrollment has been tracking, maybe in the context of the Merck program nearing approval or just increased awareness on VHL disease associated with RCC?

Yes. Enrollment has been actually really good in that program throughout. We've not seen any challenges with enrollment, and all the slots have filled very rapidly. So -- and I know that the Merck study is ongoing, but it has not detracted from enrollment into this study.

Great. And then maybe on HBV, do you have any insight into kind of what forum J&J might present the 24-week treatment data from REEF? And -- or any high-level thoughts on kind of what we can incrementally learn from that study?

Boy, no. I can't give you any guidance on that. We look forward to seeing those data, but I don't know what their plans are, to be honest, about where that could be presented.

Got it. Fair enough. Congrats on the progress.

Your next question comes from the line of Mani Foroohar from SVB Leerink.

This is Rick on the line for Mani. Just 2 from us. So first, for HIF-2, could you speak to some of the variability of knockdown seen in the data? I know there aren't a lot of data sets exploring RNAi and tumors. So could some of this variability just be due to the heterogeneity of tumors in general? Or is it something that could potentially be resolved by looking at higher doses or either earlier lines of patients?

Yes. I think that you hit the nail on the head. I mean I think there's a heterogeneity of expression in the tumors and across -- from patient to patient and also heterogeneity in between paired biopsies, you're not necessarily getting into the same area of the tumor. So heterogeneity is definitely an issue and probably explains a good component of the variability.

All right. Got it. All right. I also have a much more broad question. So just in general, Arrowhead's approach to extra-hepatic delivery seems to be focused around targeting integrins with specific ligand conjugates. Could you maybe speak to why these are so favorable to target as a class of molecules? And if the company is currently exploring any other targeting strategies preclinically?

Yes. So I'll let James take this also, but about to say broadly. We are not an integrin-targeting company. We're an RNAi company. And so we tend to use what works best, and we are agnostic. We have done work with antibodies, with antibody fragments, with peptides, with small molecules and such. And so we just -- we have ideas about what might work best, but ultimately, the data will tell us. And so it just so happened that we've -- that integrin-based targeting has been quite good for us. James?

I'll echo that we go with what works. And we went with integrin receptor ligand pairs not because that was our area of expertise, but because that was what was looking the best. And we continue -- we've historically evaluated multiple different receptor ligand pairs and continue to do so. And I think we'll continue to go with what works regardless of what the modality is, if it's an antibody or a small molecule or something else.

There are no other questions on queue. I will now turn the call over back to Chris. Please go ahead.

Thank you all for joining us today, and I hope you have a nice evening and afternoon.

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