Arrowhead Pharmaceuticals Inc (ARWR) 2021 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 call over to Vincent Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, Vince.

Thank you, Jesse. Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its fiscal 2021 second quarter, ended March 31st, 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 Ken 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 receipts 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. As we've discussed in the past, our driving focus has always been to bring our technology to patients who can benefit from it. This means treating all types of diseases, both common and rare, and getting to any part of the body. Put simply, it means going to where disease is from a population standpoint and a physiological and anatomical standpoint. As such, we are constantly working to expand the reach of our products to address various populations by scaling our production capabilities, improving administration convenience, and optimizing dosing schedule. We're also constantly striving to expand our proprietary TRiM platform to reach new cell types and address new disease areas without adequate treatment options.

By the third quarter of this year, we expect to have clinical candidates targeting 4 distinct cell types, addressing high prevalence indications, such as chronic HBV and cardiovascular disease to rarer conditions such as cystic fibrosis and AAT liver disease. It was not that long ago that many thought RNAi may only be relevant to conditions with liver express proteins, and even then only for rare diseases. We at Arrowhead have always been committed to reaching different diseases throughout the body, and have devoted considerable resources and many years of innovation and effort to strive to make that a reality.

We believe that we are now on the cusp of potentially gaining clinical validation and showing the world that RNAi can reach and silence gene targets in the lung, tumor, and skeletal muscle. We expect a data rich next couple of months, including ARO-HSD data in NASH patients, as well as those at risk of having NASH. ARO-AAT data in patients with AAT liver disease. ARO-ENaC data in healthy volunteers and a small number of CF patients. ARO-HIF2 data in patients with renal cell carcinoma and ARO-DUX4 data in animal models for FSHD. Three of these expected data readouts relate to 3 cell types that, to our knowledge, have not been successfully addressed by RNAi in humans.

It is not big pharma with tens of thousands of employees and hundreds of billions in market value that may be on the cusp of a breakthrough in one of these areas. It is Arrowhead with less than 300 employees and a market value of approximately $7 billion that may be nearing a breakthrough in all 3. Think about how that positions us for potential value creation over the near, mid, and longterm and what it says about our ability to innovate and our potential to lead in this field. Our liver directed pipeline already has 6 candidates in clinical studies, with additional undisclosed programs in preclinical development. In addition, as you've seen over the last couple of years, once we achieve clinical validation, each successive candidate in the same cell type builds on learnings from each program that went before it. We believe this provides a higher probability of success and lower risk profile than other modalities.

We expect our pipeline to potentially double in size over the next few years. We also hope to access a new cell type every 18 to 24 months, so we believe our potential for growth will continue to expand dramatically. It's this leverage that gives us confidence about the future of our company, our rapidly expanding pipeline and the patients we hope to serve. We believe this represents the future of Arrowhead and for the RNAi field broadly. We're also making substantial progress on our current pipeline programs with the potential for key value drivers in the near term.

Let's talk about a few of these. First, we announced some of the 12 month biopsy results from the 2002 open-label study for ARO-AAT last week. We intend to present a fuller data set at an upcoming medical meeting pending abstract acceptance, but I want to provide some context. These results were incredibly exciting to us, our partners at Takeda, the investigators in the study, and to the patient community. To review, the results demonstrated the ARO-AAT treatment led to a consistent and substantial reduction in intrahepatic mutant ZAAT proteins, both monomer and polymer, a consistent decrease in histological globule burden, improvements in fibrosis, and improvements in other relevant biomarkers of liver health.

Specifically, after 48 weeks of treatment with ARO-AAT in Cohort 2, the following results were observed. Four of the 5 patients achieved a one or greater stage improvement in METAVIR fibrosis stage with no worsening of fibrosis in the fifth patient. All 5 patients demonstrated reductions in histological globule assessment scores and total intrahepatic ZAAT decreased by 77% to 97%. After only 24 weeks of treatment, the following results were observed. Two of the 4 patients achieved a 1 or greater stage improvement in the METAVIR fibrosis stage with no worsening of fibrosis in the other 2 patients. The 2 patients who improved fibrosis stages during treatment had cirrhosis at baseline. All 4 patients demonstrated reductions in histological globule assessment scores and total intrahepatic ZAAT decreased by 72% to 95%.

I want to highlight a few important points about these results. First, the results were remarkably consistent. We are seeing a 100% response rate in terms of deeply reducing ZAAT expression, indicating that ARO-AAT is doing what it is designed to do in all patients that have been studied. Second, we saw that as new ZAAT protein silenced, the liver has an amazing ability to rapidly heal. As I mentioned, 50% of patients who received only 6 months of treatment saw a regression in fibrosis, and this grew to 80% of patients when they received 12 months of treatment. This is faster and more dramatic than we expected for this disease, and I believe it is faster healing than has been shown for other liver diseases, such as NASH and viral hepatitis.

The third important point is that even patients with cirrhosis, which is advanced late stage liver disease, have the potential to heal rapidly. The 2 patients we studied who started the trial with cirrhosis, or F4 METAVIR fibrosis stage improved to F3 and F2 after only 6 months of treatment. I believe that this type of rescue from cirrhosis has rarely been demonstrated in any liver disease this rapidly. Based on our extensive work in animal models, we believe that ARO-AAT could improve outcomes regardless of stage of disease. These are the first data in humans with late stage disease that support that belief. In addition, the safety assessments continue to be positive and consistent with previous reports. We have not had any discontinuations due to drug, no clinically meaningful changes in measures of lung function, and no patients have required augmentation therapy, other than those that entered the study already on regular augmentation therapy.

ARO-AAT appears to be generally well tolerated in those patients studied to date, which was our expectation, and is consistent with our other liver directed programs.

ARO-AAT is a great example of a smart target selection for an RNAi based intervention. Alpha-1 liver disease is caused by the accumulation of the mutant ZAAT protein that cannot efficiently get out of hepatocytes. This leads to aggregation of the protein into polymers that form globules, liver inflammation, and ultimately fibrosis. This cascade is well understood. It is a monogenic disease whose biology is crystal clear. What ARO-AAT seeks to do is cause that cascade to reverse by removing the insult. Our data indicate that the liver is a resilient organ with a strong ability to heal and ARO-AAT appears to improve every step in this cascade.

These are encouraging results, and we believe they could help support our goal to seek a potential accelerated path to approval. We look forward to interacting with regulatory authorities later this year.

In addition to ARO-AAT, we've also made good progress on our cardio-metabolic programs. These are ARO-APOC3 and ARO-ANG3, which are wholly owned, and Olpasiran, formerly called AMG 890, which is licensed to Amgen. On the latter program, Amgen recently disclosed that enrollment in a Phase II study in patients with elevated lipoprotein A is expected to be complete this quarter with data expected in the first half of 2022. For ARO-APOC3 and ARO-ANG3, we completed IND filings in the United States, which were reviewed by the FDA and are now active. And we intend to initiate 4 or more studies across the 2 programs.

We will give more detail on the designs when each study gets up and running, but here are the patient populations that we are targeting. For ARO-APOC3, which is focused on patients with hypertriglyceridemia, we intend to start 3 studies. A Phase IIb study in patients with triglycerides over 500 milligrams per deciliter, a Phase IIb study in patients with triglycerides between 150 and 500 milligrams per deciliter, and a Phase III study in patients with familial chylomicronemia syndrome, or FCS.

For ARO-ANG3, which is focused on patients with mixed dyslipidemia, characterized by elevated triglycerides and elevated LDL cholesterol, we intend to start a Phase IIb study. For both programs, we are also exploring additional smaller studies to answer specific questions about the compounds, but the 4 just mentioned are the primary studies we are focused on initiating first.

Before we discuss expectations on timing of key near term events across our pipeline, I want to highlight an announcement we made a few weeks ago. We announced ARO-DUX4 as Arrowhead's first muscle-targeted candidate built on the TRiM platform. ARO-DUX4 is 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 is a genetic disease associated with the failure to maintain complete epigenetic suppression of DUX4 expression in muscle. This leads to overexpression of DUX4, which is myotoxic and can lead to muscle degeneration. There are currently no effective treatments specifically for FSHD. DUX4 fits perfectly with our strategy, not only to bring RNAi outside the liver, but also to select gene targets that we believe are clear causes of specific diseases, and for which there is a strong biologic and genetic validation. We intend to file for regulatory clearance in the third quarter of 2021 to begin clinical studies of ARO-DUX4.

Let's move on to our expectations for the near and midterm. It's going to be a busy time with several potentially important events and readouts. This is especially true for the next few months, so I'm going to focus on events planned for June and July. We expect to do the following in roughly this order: one, dose the first patients in the first ARO-APOC3 Phase IIb study with a second Phase IIb and a Phase III study in patients with FCS planned for shortly thereafter. Two, dose the first patients in the ARO-ANG3 2001 Phase IIb study. Three, report initial interim results from the ARO-ENaC first in human study. This will likely include the single ascending dose safety results in healthy volunteers, gene knockdown data in the cohort of healthy volunteers that received bronchial brushings and lavage, and data from the first cohort of patients with cystic fibrosis.

Four, report full 12 month biopsy results from the 2002 open-label study of ARO-AAT. Five, report initial interim results from the ARO-HSD first in human study. Six, present preclinical data on ARO-DUX4 at the FSHD Society International Research Congress. Seven, report initial interim results from the ARO-HIF2, first in human study. Eight, file a CTA for ARO-DUX4, and potentially host a KOL webinar to discuss the disease, the market opportunity, and the potential development path. And nine, announce additional programs in the pulmonary space that are already deep into preclinical development and in IND enabling stage.

These are just the events that we expect over the next couple of months. We clearly have a very full plate in the near term, and we expect continued regular important catalysts going forward. We have been expanding in R&D to support this growing pipeline, and are thrilled to see that we can still execute efficiently, even as a larger organization. Innovation, speed, precision, and capital efficiency have been hallmarks of the Arrowhead culture from the beginning. And these principles will continue to be part of our DNA as a company. 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. Since we just reported top line results from the 12 month biopsy of the ARO-AAT 2002 open-label study, and we plan on reporting full data on the first 5 patients shortly, I want to talk about that program first.

As Chris mentioned, the consistent fibrosis regression at this early time point was unexpected and very exciting. Importantly, we think they demonstrate the clear biological relationship between intrahepatic ZAAT and the downstream cascade of events that lead to liver inflammation and fibrosis. The relationship between ZAAT and fibrosis is a key link. The idea is that substantial reduction in accumulated ZAAT protein may allow the liver, even at the stages of cirrhosis, to reverse this cascade and ultimately heal and remold itself.

So what is next? If you recall, the original idea of the SEQUOIA study was an adaptive design Phase II, III study with a dose-selection stage, and then 2 years of treatment at the selective dose in additional patients. Given the encouraging data we have seen in the 2002 open-label study, we thought a potentially faster route to NDA would be to make SEQUOIA into a more traditional Phase II study, then discuss approvable endpoint with regulators in the context of all the data we have generated. We are nearing completion of enrollment of the 36 patients in the SEQUOIA Phase II, and expect to have 12 months paired biopsy for them next year.

In addition, we expect to have data from the 16 patients in the 2002 open-label study, which gives us approximately 50 patients with paired biopsies. We will also be able to compare data from multiple time points, and with different dose levels. For an orphan disease, this is a substantial amount of data. We look forward to discussing the rich dataset with regulators. We feel very strongly that we will have a comprehensive picture of how ARO-AAT performs. I can't say that this will be enough to file an NDA, but we believe that data continues to support some form of accelerated path to approval.

ARO-AAT is being co-developed with Takeda. We're still leading development and regulatory interaction at this time. The plan is to transfer the IND and give the lead to the team at Takeda at once the Phase II studies are complete.

As Chris mentioned earlier, we expect ARO-ENaC, ARO-HST, and ARO-HIF2 to have initial interim data readouts over the next couple months. Since these are preliminary results from ongoing study, we will likely provide highlights in press release and then present a fuller data set at an appropriate medical meeting.

Let's talk about what data might be include and which cohorts are available for each program. I will start with ARO-ENaC, our inhale RNAi therapeutic candidate, designed to target the epithelial sodium channel to treat cystic fibrosis, or CF. CF is a rare disease caused by a genetic mutation that leads to mucus buildup in the lung. It is characterized by airway irritation and reduced mucociliary transport. Patients with CF can have difficulty breathing and experience frequent and persistent lung infections.

The current strategy is to administer ARO-ENaC in, what we call, dose cycles. Each dose cycle is 3 consecutive days of receiving a nebulized dose of ARO-ENaC or placebo. Repeat dose cycles occur 3 weeks later. So for example, if a patient receives 2 dose cycles, they will receive a nebulized dose on day 1, 2 and 3, and then again on day 22, 23 and 24.

ARO-ENaC is in Phase I/II dose-escalating study. We have administered ARO-ENaC in 16 normal, healthy volunteers, who receive a single dose cycle at 4 different dose levels, plus the safety and tolerability. We have also administered ARO-ENaC in additional 12 normal, healthy volunteers who undergo bronchoscopy with bronchial brushings and bronchoalveolar lavage, or BAL, at baseline and at day 18 to evaluate ENaC knockdown in the lung. These subjects receive 1 dose cycle of 118 milligrams of ARO-ENaC or placebo.

The CF patient portion of this study includes 3 cohorts. Two with 6 patient each, and 1 with 12 patients. Patients in these cohorts received 2 dose cycles and this is placebo control. The first cohort of 6 patients, 4 of which received ARO-ENaC at a dose of 40 milligrams, and 2 received placebo, is complete, and we're still in the blinded follow-up stage. The second cohort will receive a dose of 65 milligrams and the third cohort will receive a dose of 118 milligrams.

We will be reporting interim results of the 4 single ascending dose, healthy volunteer cohorts in the 1 healthy volunteer bronchoscopy cohort at the first cohort, and the first cohort of the CF patients. What we'll be watching most closely is safety and tolerability across the cohorts and the ENaC knockdown from the bronchoscopy cohort. For the CF patient cohort, we will also be measuring FEV1; however, at this lowest dose, and with only 4 patient on active drug, we do not expect to be able to detect changes in lung function.

As we get the higher doses, longer exposures, larger sample size, and are able to select a more homogeneous patient population, it is our hope that ENaC inhibition will lead to improvements in mucociliary clearance and lung function.

The next program we plan readouts over the coming month is ARO-HSD, our investigational candidate for the potential treatment of alcohol and non-alcohol related liver disease. We've seen the genetic data supporting HSD17B13 as a target for NASH and alcoholic liver disease is strong. We're conducting a Phase I/II study in normal, healthy volunteers, as well as in patients with NASH, or suspected NASH. We have completed a single dose portion of a study in healthy volunteers and have completed dosing in 2 of the 4 multiple dose cohort in patients with NASH, or suspected NASH. Targeted engagement in patients in the form of HSD17B13 mRNA and protein knockdown will be assessed with liver biopsies. In this study, the purpose of the biopsy is to obtain tissue to evaluate gene target knockdown.

As the study is short in duration, we're not assessing change in histology. This mechanism is not intended to reduce liver fat, so we don't expect to see any change in MRI-PDFF. We would be looking at other biomarkers of liver health to see if there are any early encouraging signs, but we're most focused on ARO-HSD's ability to reduce expression of [HIF] gene target at different dose. NASH has been difficult area for drug developers, but HSD17B13 is a novel target, and we believe there is a very strong genetic validation. If we can show good knockdown and safety, we will have confidence in moving towards the Phase II study to assess efficacy.

The last program for which we expect to have a clinical readout in the near term is ARO-HIF2, which is designed to inhibit the production of HIF2 alpha to treat clear cell renal cell carcinoma or RCC. We're currently conducting a Phase Ib dose-finding clinical study in 3 cohorts with advanced clear cell RCC. 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 tumor expression of HIF2 alpha and HIF-associated genes. We have completed dosing in 2 of 3 cohorts and should be able to report on those 2 cohorts in the coming 2 months.

We made a protocol amendment last quarter to add patients to the study. These are heavily pre-treated patient with metastatic lesions in different locations, so biopsy collection is challenging. The new patients were added to give us a better chance of having tumor samples that can be processed, evaluated, and analyzed. We'll be looking for data suggesting functional delivery to tumors, as well as measuring level of HIF2 knockdown.

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 March 31st, 2021, was $26.8 million, or $0.26 per share based on 103.9 million fully weighted -- fully diluted, weighted average shares outstanding. This compares with a net loss of $19.8 million or $0.20 cents per share, based on 101.7 million fully diluted weighted average shares outstanding for the quarter ended March 31, 2020.

Revenue for the quarter ended March 31, 2021, was $32.8 million compared to $23.5 million for the quarter ended March 31, 2020. Revenue in both periods related to the recognition of a portion of the upfront payments and milestones received from our licensing collaboration agreements with Janssen. And our revenue in the current period also includes the recognition of a portion of the $300 million upfront payment due upon the signing of our collaboration agreement with Takeda. This payment was received in January.

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 $266 million of revenue associated with the Takeda collaboration is anticipated to be recognized over approximately 2 years. Our performance and revenue recognition under the Janssen agreement is substantially complete. Any additional milestones achieved with our collaboration partners would be additive to this projection.

Total operating expenses for the quarter ended March 31st, 2021, were $61 million compared to $45.8 million for the quarter ended March 31st, 2020. This increase is primarily due to increased personnel costs and non-cash stock compensation in R&D as our head count continues to grow. The increase is also due to increased candidate-specific and discovery R&D costs. Net cash provided by operating activities during the quarter, ended March 31st, 2021, was $263.9 million compared with net cash used by operating activities of $27.6 million during the quarter ended March 31st, 2020. The key driver of this change was the upfront payment received from Takeda in January.

We estimate our cash burn rate to be $50 million to $60 million per quarter. Turning to our balance sheet, our cash and investments totaled $674.8 million at March 31st, 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 for operating activities. Our common shares outstanding at March 31st, 2021, were 104 million. With that brief overview, I will now turn the call back to Chris.

Thanks, Ken. Clearly there's a lot of progress being made and our pipeline is becoming broader and more advanced. The upcoming data readouts are exciting on their own, because they potentially represent progress towards new therapies for patients without adequate treatment options. These are people with serious diseases, and this is important to remember.

What is also exciting to us, as a company, is that these data readouts in new tissue types potentially represent clinical validation for our expanding TRiM platform. This is the future of Arrowhead and holds the promise of initiating our next phase of rapid pipeline growth and value creation. Thanks again for joining us today. I'd now like to open the call to your questions. Operator?

(Operator Instructions) Speakers, our first question is from the line of Maury Raycroft of Jefferies.

Congrats on all the progress. First question is on ENaC. For the cystic fibrosis patients in cohort 1 and the patients you plan on enrolling in the next 2 cohorts, can you provide any more specifics on baseline FEV1 or patient histories? And then, were the 65 and 180 mg doses pre-determined or informed by the healthy volunteer data? And can you talk about your degree of confidence in maximizing potential with cohorts 2 and 3?

Sure. Thanks, Maury. I can give you broad answers there and I'll leave it to Javier for the more granular ones. The doses were chosen before we saw any data from healthy volunteers. So these initial doses were based solely on our GLP tox studies and studies in other animal models.

I think we mentioned in the past, we've gone through all the various doses in healthy volunteers, and so far, at least in those individuals, it's been well tolerated. So we are cautiously optimistic that, that will continue to be the case and we're looking forward to seeing if we see any changes in FEV1 as we escalate the dose. You had a question about FEV1 parameters as they came into the study and, I'm sorry, what was the third question?

The FEV1 parameters or patient histories, if you can comment on that.

Okay. Javier?

Generally speaking, I'll give you a sense of inclusion criteria, which was similar to the Vertex study. So FEV1 40 to 90 at baseline, so that's the range for patients in this study. For the most part, these first cohort were relatively young patients and the other [51] was close to about 70 or so. In this study, there is a quite interesting feature, which is, those patients who have more than 70%, will be candidates to do the LCI self-study. But, in general, it's a relatively young patient population and all from Australia, New Zealand, and FEV1, in average, is about 70.

And let me also -- I mentioned this in the prepared remarks. Let me tell you what we're really looking for here. We're looking for good knockdown in the healthy volunteer cohort that are undergoing the bronc-analysis. We think that's the most important take home right now. Let's see if we're getting good knockdown. I think that, with just this first cohort, all we have is 4 patients -- the first cohort of CF patients, all we have is 4 individuals on active drug and it's a low dose, of course. So it feels to us like it is going to be very difficult, at those small numbers, to see small changes in FEV1. So again, we're really focused on good knockdown.

I think that if we can see 50% knockdown, I think we're in good shape there. Because as we've talked about in the past, if you look at the heterozygous in the genetic analysis, those patients with CF, but are essentially heterozygous knockout, so of ENaC, they did show a clinical benefit. So that's really our bogey right now.

Got it. That's really helpful. And maybe one last follow up and then I'll hop back in the queue. For the cohorts 2 and 3 for cystic fibrosis patients, could we expect data from those cohorts at the end of the year? And if you can comment on potential to see ENaC knockdown in the CF patients, if there's any strategy in place for that?

Yes, that's a good question. So yes, on the first product question, yes, I would expect for us to have those data in the next few cohorts and in CF patients that we can present at some point this year. Look, we haven't dosed those patients yet. And so we're not holding those back, but I do expect that we'll have those by the end of the year. James, do you want to address the question about doing broncs on CF patients?

Yes. So we've, right now, opted not to bronc the CF patients, more just because that presents a potential hindrance to enrollment and it's a rare disease population already. So the intent, currently, is to do the broncs in the healthy volunteers obtain knockdown data from those subjects, and then dose the CF patients without broncs at the same dose levels.

Next question is from the line of Alethia Young of Cantor. Your line's now open.

I think we've lost Alethia.

Can you hear me? Can you hear me?

Yes, we got you.

Cool. Sorry. My first question was, with this 50% knockdown on ENaC, is that Vertex level, FEV levels, when you're at the right dose, or is it lower? How do you think about that? And then, also on the NASH, with this particular target, do you think there's a certain group of NASH patients where it'll -- will it work in the more severe or less severe? I just wanted to confirm that we'll get some biopsy data that looks at histology, in addition to liver enzymes.

Sure. We are not looking at histology in this first study. It's too short exposure. We're really just looking at knockdown, because this study is really just designed to pick a dose. And we'll be picking that based on knockdown levels. Your other question is a really good one, about whether or not there are certain patient populations that will be really more amenable to this sort of therapy. I'll let James and Javier answer that. The answer is, I think, no, we don't know. I think it's too early to tell at this point. The genetic validation has been quite good. The genetic studies have been quite good. Silencing of this gene product does appear to confer a protective effect. I don't know if it's known, if that would be more pronounced in certain patient populations. Do either of you know that?

Yes. I can make a couple of comments. This is Javier. Really good question. It's something that we've been thinking a lot about it, because, as you know, NASH is a big condition with many different stages and different causes, and there's many, many drugs in development with different mechanisms of action. So it is important to start to narrow down and say what would be the best patient population. So there will need to be a lot more work to really start to think about that with HSD.

What we will say is, we don't believe that it's about metabolic. We don't believe it's about liver fat. There are drugs in development for NASH that has that focus. So it's likely to be more genetic, because the data, as Chris said, was positive not just for NASH, but also for alcoholic liver disease. So that tells you that this above the underlying mechanism for NASH.

That is a hint, it's an initial hint to start to think about, clinically, the next step in development of Phase II and Phase III. So more work needs to be done, but right now, that's how I think about it. And we're working with expert in the field to really fine tune this. Again, this is, I think a key question for the next steps in the development of this drug.

And your question around ENaC about what sort of knockout percentage could translate into certain FEV1 improvement. The answer is, that's a great question. We don't have any idea at this point. I will say though, however, and I'll remind you and others, and I think you know this, Alethia, but that we're not -- the success of this drug is not dependent upon putting Vertex out of business. Rather, our initial patients -- target patient populations here are those who are not indicated for Trikafta, for instance. These are the null nulls that have no -- 10% of the population or so that have no CFTR to correct. It will be those patients who are not able to take Trikafta, et cetera. And so we think that given that, given those parameters, look, if we can just show a 5% improvement in FEV1, that's a win for these folks. Because again, they don't have any other real therapeutic options right now. Going forward, we can see if we can expand that, but at least initially that's the target patient population.

That's fair. And just one follow up on the NASH. Do you think you need a really deep knockdown to drive benefit or is it like that 50% level? I'm just trying to get a feel for this particular [context.]

I think for that, more knockdown is better. I think if we show only 50% knockdown, I'd be disappointed because as you know, I think we're generally pretty good at knocking down liver transcripts. So I would expect better than that. And I think again, as high as you can get is probably better. There does not appear to be a negative phenotype with silencing that gene product. So it's not like we're trying to titrate to some level, but not go above some level.

Next question is from the line of Esther Rajavelu of UBS. Your line's now open.

Congrats on all the progress this year. So 2 from me. The first is on the APOC3 trial strategy here. It sounds like you've decided to go with the broader patient population for triglyceride management. So can you talk about enrollment and timing expectations in the 3 different patient segments and how progress in each of those trials may offset filing timelines and broader strategy around commercialization there?

Sure. So look, our primary focus here really is on those severe hypertriglyceridemic patients. Those are patients with trigs above 500. We think there's probably a bit more than 4 million of those in the United States alone. We believe that an approvable endpoint there is simply lowering triglycerides. We know we can lower triglycerides substantially given the data in our Phase I/II study. And so that just seems to be a pretty straightforward market for us.

Having said that, we also are interested in the FCS market because we believe that we can get to market much more quickly there. As we talked about, we think we can initiate a Phase III study shortly. We think that's a year long study once enrolled. And so that will allow us to get to market quickly and start just to be in the market.

You mentioned the broader population, the reason that we're also doing a Phase IIb study in those patients from 200 to 500, or 150 to 500 -- I'm sorry, 150 to 500, is just to really retain optionality. It could be that we're going to want to do a broader Phase III study in that population that would be, I believe, probably an outcome study. I don't know that we're going to want to do it now, but I want the optionality. So as I said, if we do decide to go there, we can go there quickly. Javier, do want to talk to timing and such?

Yes, I would say another comment about this broad population and why we're doing the Phase IIb study. One is what Chris just said. But the other is because we're really focused on the first filing will be FCS followed by severe hypertriglyceridemia. And we want to have a good pool of patients to really describe the safety profile and be able to accelerate the approval and the Phase III for severe hypertriglyceridemia patients.

So I wouldn't be very concrete about the timing other than we're started the screening process for APOC3 severe hypertriglyceridemia patients, as we speak. We got the IND in where some tests are meeting the AfCS protocols. So the entire APOC3 program is starting at the same time, or about a month, study -- one study after the other. And I think we're planning to do these 3 things. Get ready for a broad population clinical outcome study and have a Phase II data that will enable the registration study for severe hypertriglyceridemia, which we believe will be an about 1 year study and does not require clinical outcomes.

So biomarkers in this case, triglyceride is sufficient. And we're starting a Phase III study for the ultra-rare FCS indication also in the next couple of months. So it's a very broad program with these 3 measure path.

Got it. And then another one really quickly, is this the latest program, the muscle targeting agent that you have, that you're planning to file, the DUX4 asset. Can you talk about that in the context of some of the other preclinical agents that are being considered by others?

Sure. James, would you go ahead and address that?

Yes, sure. So I'm assuming that you're referring to some of the other oligos that are preclinical that are targeting that. I have not seen data with any of those preclinical compounds. I think our approach is a little different given the targeting approach that we're using. We use a small molecule targeting approach with the siRNA mediated mechanism of action versus antisense targeted with transferrin or siRNA targeted with the transferrin targeting ligand. Again, I think that those other compounds are still early preclinical. And as Chris mentioned, we should be filing in the next quarter or so.

And as we mentioned in the prepared remarks, we will be presenting animal data in June at the FSHD conferences. So we look forward to sharing that with you and we're excited about the data. We think those are good data. We're excited about the drug candidate.

Next question is from the line of Ted Tenthoff of Piper Sandler. Sir, your line's now open.

Great. Actually a lot of my questions have been asked and there's just so much going on. Maybe with respect to DUX4, and I apologize if this was asked, but with respect to some of the competitive programs out there, how do you deliver it to the muscle and what do you see as the market opportunity?

Sure. So stay tuned on those. I expect that we'll have a webinar to go into the market dynamics of that a bit, the way we view the market. Look, it is a substantial muscular dystrophy. We think it's a substantial opportunity there. There are no good therapies that are designed directly for FSHD. The biology here is crystal clear. We know it is the continued expression of this protein that causes this disease. And look, we believe we can knock it down, at least in animal models we have.

And so you'll see some nonclinical data in June. I expect sometime thereafter we'll have a webinar where we'll talk about the way we see the market and such. And with respect to competitors, as James mentioned, there's not a ton of data out there. People have talked about the data that they've generated, but we haven't seen very much of it. And so we are hanging our hat on the fact that we're pretty good at RNAi. We're pretty good at getting outside the liver. I think we'll be the first of this type of molecule to the clinic. And so we'll see how we stack up.

Perfect. I appreciate it. Excited for all the data coming, guys.

Thanks, Ted.

Next question is from the line of Luca Issi of RBC Capital Markets.

Oh, fantastic. Congrats on all the progress. Maybe one quick one on AAT. Can you give us some directional color on the ongoing dialogue with the FDA here? Is there a scenario where the impressive data from the 2002 trial plus the first 36 patients from SEQUOIA is actually sufficient for an accelerated approval? If so, what gives you confidence that that could be the case? Maybe if there's any comps that we should think about it.

And then the second one on ENaC, maybe for Javier here. I think we've seen Ionis showing an improvement in FEV1 of 4.5% in the highest dose. Wondering if you believe that you can actually show something better here, given that the cellular uptake for your molecule is receptor-mediated via integrin while that is not the case for Ionis? If you’ve got any color there, it would be great. Thanks so much.

So I'll address the AAT question. It's a great question. And it's one that I just don't want to tackle. We'll have those discussions with the FDA. We've had a good collaborative relationship with the FDA in the past, and we expect that to continue. And so we've got an awful lot of data to unpack and see how we can move forward as quickly as possible to get to patients.

Look, I think that we are aligned on this. The FDA and other regulators recognize this as a real unmet medical need. We offer, I think, a good opportunity to help an awful lot of people with this liver disease. And so I think we all want to see regulators and us, of course, and the patient groups, we all want to see a drug to market as quickly as possible. We'll just see what that route is.

As Javier mentioned in the prepared remarks, we're going to have paired biopsies for around 50 people, which is a lot for an orphan indication. So we think there's an awful lot of data there. And then we'll just have to see if that could be enough for the FDA. We just can't opine on that at this point. And, Javier, you want to talk about ENaC?

Oh yes. So your question with regard to ENaC, whether 4% or 5% we can do more than that. Well certainly, that's our expectation and what we would like to see. Whether that will be related to the level of knockdown, well that's what we've seen in other RNAis in our experience with other target tissues. So that's the expectation that we may see 50 or more percent of a knockdown, and that should translate into improvement in MCC or mucociliary clearance that eventually will translate into an improvement in FEV1.

So we do believe based on our previous experience, that those response, it's likely will happen. We believe that we've been very successful and have the ENaC get into the epithelial cells and therefore knockdown the gene to a point that we'll see the clinical benefit. So that's the belief, that's what we believe that we're going to see. A very significant knockdown and the consequence improvement in the clinical aspect of the disease, which is MCC and FEV1 or similar.

Again, of course we're cautiously optimistic that we can achieve that and maybe beat it at some point. The reason that I'm trying to manage our expectations here on this first data readout is because not only it's a low dose, but it's only 4 patients. And FEV1 as you know can be an awfully noisy measure. And so that just feels like such small sample size that to expect to see changes in FEV1 at that point is asking a bit much. And so let's just wait and we are cautiously optimistic that we have something that can help some of these patients.

Gotcha. Super helpful. Maybe just a super quick follow up over there Javier, I want to make sure you've captured the question. So it's my understanding that you guys are conjugating your siRNA within integrin receptors right? A ligand that binds integrin receptor. Will that matter? Will that drive potentially better seller uptake versus the Ionis approach that does not have a conjugation with an integrin receptor? Is that a factor we should think about it, or not? Any color there would be great.

James, would you like to address that?

Sure, sure. Yes, I can take that one. Based on our animal data, the targeting ligand matters. We get better knockdown with the targeting ligand than when we don't use the targeting ligand. Of course, that's with siRNA in animals. We haven't looked at antisense but that's our experience.

Next question is from the line of Patrick Trucchio of H.C. Wainwright.

Just a couple of questions for me. Follow up questions on capital allocation and the development strategy. So I'm wondering how we should think about the pipeline build-out and strategy, particularly if we see evidence with the extra-hepatic programs that the TRiM platform is capable of successful target knockdown in tissue beyond the liver.

Specifically, how many programs could you build out in the lung muscle and other tissue, which -- based on your current capital position? And then secondly, I'm wondering what the requirement is for moving forward in a particular indication. Specifically, are you evaluating potential programs in these extra-hepatic tissues based on genetically validated targets? Or would you be looking for clinically validated targets in additional tissue? And how we should think about that.

And then lastly, I think you've mentioned in the past the intention to partner HIF2 and possibly other programs. So I'm wondering what the latest thinking is on potential partnering for liver targeted programs and the extra-hepatic programs.

Boy, there's a lot to unpack there. So let's see. How many targets can we go after? The answer is, I don't know the answer to that. Look, I think we're well capitalized right now. We've got access to, I don't know, 600 and change more potential millions of dollars in Amgen milestone payments, something around that. Several billion dollars of possible milestone payments from Janssen. 700 and change or so million dollars of possible milestone payments from Takeda. So we've got access to a fair amount of additional capital.

Put it this way. Look, we're not slowing anything down right now because of capital conservation. We have enough capital to push all these programs forward. And if you look at our burn compared to some of our competitors, I think we do it in a pretty capital efficient manner. So we're not at a point where we are capital constrained. And frankly, I don't see that in the near term, at least. We've got good bandwidth and capital for a number of programs.

And the question then is what do we hold onto and what do we partner? And that's a dynamic question. As we've talked about in the past, our pipeline is going to be so large that no company, much less a company our size, can commercialize all that. And so we will do some targeted, no pun intended, partnerships. You saw that with Takeda, you saw that with Amgen, you've seen that with J&J. And we'll continue to do some of that. But an important part of our value creation model here is to hold onto a fair number of molecules and commercialized drug. That's why Jim Hassard is here in this room. He's going to be developing our commercial infrastructure. When we look at where we place our bets here, what we're going to be looking to do is to create some synergy and some leverage among our various products.

We've talked about in the past, the idea of some synergy around cardio-metabolic assets, we'll have APOC3 and ANG3. We like the idea of building commercial infrastructure to sell both of those drugs into lipid clinics and cardiologists, et cetera. Similarly, we like that for pulmonologists. There are somewhere between 14,000 and 16,000 pulmonologists in the US and the lung is a target rich environment. We've got 1 lung candidate in the clinic right now in ARO-ENaC, but we've got several that we're developing in addition. And so we like the idea of packing our pipeline and addressing those large markets with the commercial infrastructure.

Got it. That's helpful. And then just another, if I may, just a quick follow-up on Olpasiran and Lp(a). So you mentioned that the next Phase II data sets expected in the first half of 2022. So just wondering what are the expectations ahead of that data and what are the relative advantages as compared to the ASO approach? And what, if any milestones or payments are expected to Arrowhead at that time?

We can't give you any guidance on what the data will look like, or even frankly, when it's going to come out. Amgen has said publicly that they expect to have data in the first half of 22. And I can't get any more granular than that.

Look, we're excited about that. We think that's a great drug. Given the data that we've seen, that they have presented publicly, that looks like a very potent drug with good durability and we're excited to see what this Phase II study looks like in terms of really blowing out how durable that is. But I think that's going to be a key advantage to ASOs. I think generally speaking, when you look at ASOs versus siRNAs, at least as it relates to hepatocyte-directed constructs, I think that we will beat ASOs in durability. That has a theoretical basis as well as a clinical basis.

We know that RNAi is a catalytic process, whereas antisense oligos work on a consumptive process. And then that has been borne out in clinical data. We're generally just substantially more durable than antisense oligos. With respect to safety, if you look back at the safety profile of various antisense oligos, we think that we'll have an advantage there also. There's no, for instance, there's been no class effect that's been seen in siRNAs with respect to thrombocytopenia, but we have seen that in antisense oligos. So we're excited for Amgen. We think they're the right partner and we think they've got the right drug.

Next question is from the line of Salveen Richter of Goldman Sachs.

This is Sonya on for Salveen. Could you provide the rationale for why you chose FSHD as the first indication for your skeletal muscle asset?

Sure. Thanks for that question. We think FSHD is a perfect, or as close to perfect as you can get, I think, target for this. The biology is clear. We know that the continued expression of DUX4 causes this disease. You and I shouldn't be expressing that right now, somebody with this condition does. If we can just turn that off, then that should alleviate the sequelae around that disease.

We also don't run the risk of oversilencing if you will. As I mentioned, I think more knockdown is better than less. And so it's not like we have to get to a certain level of knockdown and go no further, so that's helpful to us.

The only thing that is troublesome about the target, is that there's no, at least that I know, there's no known circulating biomarker. And so when determining what our dose is going forward, when determining our knockdown levels, we're likely going to have to do biopsies. Look, that's not a deal breaker, that's just a little bit more cumbersome, but this is a patient population that is in desperate need of new therapies. And so we think we really have something that could be helpful for them.

This question is from the line of Keay Nakae of Chardan.

Chris, you mentioned your other pulmonary targets that are under development. I'm wondering when we get the initial knocked down data for CF patients, what kind of read across could that provide to your other pulmonary programs? So in other words, are you using the same inhaled route of administration, the same conjugated ligand for epithelial cells and it's just a different siRNA payload?

Yes, that's a great question. So yes, we expect to build a read through these data to read -- gosh, let me put that better. We do expect this to read through to our potential other programs here in pulmonary, and we are using the same jargon in ligand. We're targeting alpha(v)beta(6)-integrin. And so to the extent that we see knocked down in ARO-ENaC, we would expect that would suggest that we should see knocked down in the other ones. As you point out, just to get a sequence, they're modified differently, of course, as well, but if we get knockdown on one, I would expect to get knockdown in the other. And so that's why this data readout is so important to us. It reads on our ability to create a real pulmonary franchise. If we can do that, there is a ton of value that we can create, and there is a ton of product candidates that we can create and a ton of drugs I think we can bring to various diseases.

Next question is from the line of Mayank Mamtani of B. Riley Securities.

So maybe just quick follow up on ENaC. Yes. Another one. Could you maybe comment on the safety profile, given the history of the target? And the reason I ask is how much do you think that you can push the envelope on efficacy beyond the doses that you're testing and patients that are [null] now versus those with partial function? And basically at what point you can kind of make that determination that you can quickly move to the next Phase II or III study.

Yes. Sorry that line was not great, but what I think I heard you ask was about the safety profile that we've seen so far. And we can't go into detail of course, until we present the data. But we have said publicly that we've seen a good safety profile so far, we've had no discontinuations due to drug. We have been really pleased with what we saw and, look, we didn't expect problems in safety for this, but you just never know when you're bringing a new class of drugs into a new cell type, particularly the lungs. And we've been really quite thrilled that the safety profile has been good. I think a follow on question here is, again, I apologize that the connection wasn't great, was could you go higher if you needed to go higher and I'll defer to James on this, but I believe that there has been no reason to...

And how do you balance it going into a Phase II, Phase III study, and then [nulls] patients versus those with partial function? I hope you can hear me fine now.

Yes. I can cover the question on safety and dose escalation. And we have not seen any safety findings in the clinical studies that would prevent us from increasing the dose. What was the other question?

You're talking about considerations for Phase II, III, and again, we had crackling on the line, so I'm not sure what...

Are we limited in the background patients that we can enroll in this? So do they have to have a lung function above something, some certain level?

No. I don't think, I mean, at this point, as Chris mentioned early on, we're very interested in the [nulls] just because they don't have any other options, but we are certainly looking at and enrolling patients now that are on CFTR modulators. And there's no reason that we can't study that population down the road.

Okay. And maybe just a quick follow-up on the HBV read out that is expected later in the year. I understand it's ran by J&J, but just given the deep and durable HBV that's out there to knockdown what you had. And maybe just also touch on the differences between Phase I and II and then what learnings we could have from the 2 different studies.

Yes. I can't give you any guidance on when those might read out. And I certainly can't give any guidance on what might be in there. I haven't seen anything, of course. REEF-1 is 450 patients, as I recall. And it's a triple combination -- or its various permutations of 3 different compounds, a nuke, one of Janssen's cast inhibitors, and then our RNAi drug. Again, it's various permutations of that. And the end points have to do with, with s antigen as I recall, after 12 months of therapy and then a 6 month follow-up as well. REEF-2 is similar, but it also has some stopping criteria. If s antigen, or if other parameters reach certain criteria, then it's my understanding that therapy could be withdrawn. That's going to be interesting I think just given the nuke stop studies that have been done over the last several years. So look, I'm as excited to see those data as you are. And I can't give you any better guidance on when those data will come out.

Great. And final question, which new cell types should we expect to have from you? Given I think we are getting closer to that 18 to 24 months window since you said that you'll be going after muscle.

Sorry, you're breaking up. I couldn't get that question. I'm joking. I can't answer. We are of course working on other cell types and I can't give you any guidance on what's going to pop. There are several that we are working on. But stay tuned you'll hear about them.

Last question is from the line of Mani Foroohar of SVB Leerink.

A couple of quick ones. First, when you think about targeting HIF, you're talking about a much more heterogeneous pool of cells within a single patient and much more heterogeneous disease between patients than in other inherited genes for defined diseases. Are there mechanisms in terms of biopsy approach, patient selection, et cetera, that you can pursue to try and get a better sample and more accurate assessment of how effectively you're targeting the target tissue and where your knockdown is across the population of cells? And then I have a follow-up kind of boring financial question.

Yes. That's a good question. So the answer is, at least in the first part of the study, we're just seeing what we're going to see. And then follow-on questions, follow-on studies, we'd like to see if we can find patients that are enriched. James, is there anything you want to add to that, with respect to what we're looking for now and in the biopsy, what can we see and what might people...

Sure, sure. Yes. I mean the critical aspect of this study, it's all about target knockdown. And of course HIF, 2 targets really drives a large percentage of RCC tumors. So we think this is a critical target for this disease. In terms of ways to maximize biopsy yield, I think there's certain tissue types that we have asked sites to preferentially biopsy over others that just do higher yield in terms of number of tumor cells and improve our ability to measure knockdown. I'm not sure if that addresses your question or not.

Yes. And maybe also what you're getting at and we don't know the answer to this. Boy, it would be nice if we can tell if those better responders and if we see a difference in response rates, those better responders, if they are higher expressors of integrins versus the low responders, I don't know how much we can tease that out in this study, but that would be something that would be helpful going forward, I think.

Great. That's helpful. And now the financials question. As you guys move into a state where you're running more mid and late stage studies across a broader pipeline, across many different tissue types, different types of clinicians that you're addressing, cardiologist, pulmonologist, oncologist. How should we think about modeling growth in R&D expense? And then, as proportionate stock-based comp from expense, do you expect that to stay linear in a percentage basis? Become a larger or smaller portion of comp as the company scales, in terms of absolute head count in future years? Like how do we think about those trends?

So I'll answer the first question sort of, we haven't given any guidance on increase in R&D spend. We're not fair to do that quite yet. Give us a bit of time, but we haven't given any guidance there. Ken, do you want to address the stock?

Yes. So stock compensation it's really hard to estimate because it's really based upon the value of our stock when we issue our equity. It is a non-cash expense. So I would sort of use that as a guide and leave that out, but we really can't give you better guidance on sort of the growth of what that expense will be.

Thank you, participants. I'll now hand the call back over to Chris Anzalone for closing remarks. Sir, you may proceed.

Thank you all for joining us today. And we look forward to talking to you again soon and enjoy the rest of your week.

And that concludes today's conference. Thank you all for participating. You may now disconnect.