Arrowhead Pharmaceuticals Inc

NASDAQ:ARWR

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, welcome to the Arrowhead Pharmaceutical’s Conference Call. Throughout today’s recorded presentation, all participants will be in listen-only mode. After the presentation, there will be an opportunity to ask questions.

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

[Vincent Anzalone, VP, Head of Investor Relations]

Thanks, Amanda. Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead’s results for its fiscal 2018 first quarter ended December 31, 2017.

With us today from management are President and CEO, Dr. Christopher Anzalone, who will provide an overview of the quarter; Dr. Bruce Given, our Chief Operating Officer and Head of R&D; and Ken Myszkowski, our Chief Financial Officer, who will give a review of the financials. We will then open up the call to your questions.

Before we begin, I would like to remind you that comments made during today’s call contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, 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 and expected future development activities. These statements represent management’s current expectations and are inherently uncertain. Thus, actual results may differ materially.

Arrowhead disclaims any intent and undertakes no duty to provide any – sorry, to update any of the forward-looking statements discussed on today’s call. You should refer to the discussions under risk factors in Arrowhead’s annual report on Form 10-K and the company’s subsequent quarterly reports on Form 10-Q for additional matters to be considered in this regard including risks and other considerations that could cause actual results to vary from the presently expected results expressed in today’s call.

With that said, I’d like to turn the call over to Dr. Christopher Anzalone, President and CEO of the company. Chris?

[Christopher Anzalone, President and Chief Executive Officer]

Thanks, Vince. Good afternoon everyone, and thank you for joining us today. It’s been a short time since we held our last earnings call for fiscal 2017 year-end, but we have already made substantial progress toward our goals for 2018. It is gratifying to see how far we’ve come in the last 12 months and exciting to see what we are expecting to accomplish in 2018.

We’re positioned to go from zero to five clinical programs in 12 months, and I want to applaud the hard work of all the smart, talented and driven folks at Arrowhead who are making this possible.

Let’s begin with the primary goals we have for calendar 2018. They are, one, complete dosing of our Phase 1/2 study of ARO-HBV; two, complete dosing our Phase 1 study of ARO-AAT; three, organizing R&D Day to discuss the new pulmonary platform; four, execute a business development collaboration; five, file a CTA for ARO-APOC3; six, file a CTA for ARO-ANG3; seven, file a CTA for our first inhaled pulmonary program, ARO-Lung1; and eight, present data at appropriate scientific conferences.

All our programs are based on our TRiM platform, which utilizes ligand-mediated delivery and is designed to enable multiple tissue targeting while being structurally straightforward. It is a product of more than a decade of research at Arrowhead, using targeted drug delivery vehicles for RNAi.

TRiM technology enables Arrowhead’s RNAi therapeutics to retain the maximal activity achieved with prior generation technologies, but with a more structurally straightforward molecule that offer several potential advantages. These include simplified manufacturing and therefore, reduce costs; multiple routes of administration, including subcutaneous injection and inhaled administration; potential for improved safety; and the promise to bring RNAi to tissues outside the liver, which would represent a big leap forward for the field and a substantial competitive advantage for Arrowhead.

For a more comprehensive presentation on the TRiM platform, you can view the webcast recording of an R&D Day that we hosted in September 2017, which can be found on the Investors section of the Arrowhead website.

One significant benefit of the TRiM platform is that, it allows us to move very fast from an idea to an optimized clinical candidate, as demonstrated by the speed at which we are able to advance our two lead candidates. ARO-AAT is our second-generation subcutaneously administered candidate for the treatment of alpha-1 antitrypsin deficiency liver disease, and ARO-HBV is our third-generation subcutaneously administered clinical candidate for the treatment of chronic hepatitis B virus infection.

We went from restarting our preclinical models and designing new triggers at the end of 2016 to selecting the final candidates, manufacturing drug supply, completing GLP tox studies and filing CTAs just 12 months later. The ARO-AAT filing was a quarter ahead of guidance and the ARO-HBV filing was two quarters ahead of guidance. This was the result of monumental effort by our R&D organization, but also related to our technology and our corporate culture.

The TRiM platform allows us to start and advance some new product development programs with extreme precision and we are relentless in our pursuit of speed. We look for every opportunities to shave days, weeks and sometimes even months off the development timelines.

Since filing our CTAs, we’ve had positive interactions with the review committees for both the ARO-AAT and ARO-HBV programs, and only a few questions have been asked. Drug will be available at the sites in March, and we believe we are on track to begin dosing this quarter. Although, of course, this will require final regulatory and IRB approval.

For both candidates, we intend to use fixed dose levels as opposed to dosing on a milligram per kilogram basis. We hope this will simplify the process for pharmacists at the sites and reduce the risk of dosage error. They also give opportunities for simplified commercial dosage forms, such as prefilled syringes or other options that make it easier for patients and physicians to administer the products.

We have a good amount of experience with these diseases from our prior clinical programs that spanned 17 countries and included more than 300 human subjects receiving over 800 dose administrations. Our relationships with influential investigators throughout the world remain strong. This is partly due to the high-quality science that underlies our candidates and our proven ability to effectively manage complex clinical studies.

For both candidates, the first-in-human studies will evaluate safety, tolerability, pharmacokinetics and pharmacodynamic effects. For ARO-AAT, the pharmacodynamic measure will be the reduction of serum alpha-1 antitrypsin levels. For ARO-HBV, we intend to assess all measurable viral markers, including s-antigen, DNA, RNA, e-antigen and [correlated] [ph] antigen in chronic HBV patients.

Now let’s turn to the other programs in our pipeline. During our R&D Day last year, we talked about our expanded cardiometabolic pipeline, which includes ARO-APOC3 and ARO-ANG3. ARO-APOC3 is designed to reduce production of apolipoprotein C-III or APOC3, which is a component of triglyceride-rich lipoproteins, including VLDL and chylomicrons and is a key regulator of triglycerides metabolism.

Elevated triglycerides levels is an independent risk factor for cardiovascular disease and severely elevated triglycerides in patients with familial chylomicronemia syndrome, or FCS, can result in acute and potentially fatal pancreatitis.

ARO-ANG3 is designed to reduce production of angiopoietin-like protein 3 or ANGPTL3, the liver synthesized inhibitor of lipoprotein lipase and endothelial lipase. ANGPTL3 inhibition has been shown to lower serum LDL, serum and liver triglycerides and has genetic validation as a novel target for cardiovascular disease. Both APOC3 and ANGPTL3 appears to be well validated targets and could be of interest to large pharmaceutical companies, with resources to run large pivotal cardiovascular studies and ultimately market such drugs.

We believe that ARO-APOC3 and ANG3 will be the first RNAi candidates against these targets to reach the clinic, and that we will have certain advantages against other potentially competing modalities. As such, we believe we are well-positioned to attract good partners for these programs when the time is right to enter into collaborations. We should be on track to file CTAs by the end of 2018 for both programs.

We’re also moving forward with disease targets outside liver. The first two of which are ARO-HIF2, which is being developed for the treatment of clear cell renal cell carcinoma and ARO-Lung1 against an undisclosed lung target. ARO-HIF2 is moving toward a planned CTA in 2019 and ARO-Lung1 has a planned CTA around the end of 2018.

We have not disclosed much about our lung targeting programs. We have generated some very promising data showing that after inhaled administration, we can achieve substantial knockdown of lung expressed targets with long duration of effect. We can foresee a host of new diseases we can attack and multiple targets for each of those diseases.

As such, our TRiM-based pulmonary platform feels like a franchise unto itself. This could enable us to drug certain targets in a way that no other company is currently capable. Needless to say, we see substantial value creation opportunities here.

Our goal is to have an R&D Day around the middle of the year to discuss that program in more detail and reveal our first disease target. We are really excited about this and we will provide more information about the R&D Day presentation in the coming months.

Having a reliable technology platform like TRiM gives us far more product development opportunities than we can currently move forward ourselves. Because of this one of our key strategic priorities is to seek development partners for some of our programs and retain global rights for others.

As I mentioned, we see ARO-APOC3 and ARO-ANG3 as potentially attractive partner programs at some point, and we see the pulmonary platform as target-rich for collaborators as well.

In September 2016, we signed our first partnership and collaboration agreement for the TRiM platform with Amgen. That deal covered two cardiovascular candidates; one against lipoprotein(a), or Lp little a, which is referred to as AMG-890 by Amgen; the second, which we call ARO-AMG1 is against an undisclosed target. We’re thrilled to be working with a company like Amgen and both of these programs are progressing well.

ARO-F12 is another candidate intended as a partnering opportunity. It is designed to reduce the production of factor XII, which may provide benefits in both thrombosis and hereditary angioedema. We previously had it listed on our pipeline chart as available for partnering. We will discuss ARO-F12 with interested parties, but we do not currently have a development partner and we do not intend to initiate clinical studies on our own, so we have removed it from our pipeline. We will provide updates if this changes.

We see partnering as a way to maximize the value of our technology. It allows us to focus our internal development resources on our lead candidates and also gives us exposure to additional high-value opportunities that may be beyond the reach of a small biotech company.

In addition, partnering can be an important source of capital that can supplement our need to access the capital markets. That leads me to our recent equity financing with gross proceeds of $60.4 million. This was a very successful oversubscribed transaction that accomplished several important goals. It strengthened our balance sheet, so that we can move our pipeline to key milestones that could represent significant value catalysts.

The stronger balance sheet also puts us in a better negotiating position should additional business development opportunities arise. The equity raise also gave us a much improved institutional investor base. Since we discontinued the ARC-520, ARC-521 and ARC-AAT clinical programs in 2016, we have been substantially under-owned by institutions. We still have a lot of opportunities to bring in new funds, but this financing was a good first step towards rebuilding a long-term supportive shareholder base.

With that overview, I’d now like to turn the call over to Ken Myszkowski, Arrowhead’s CFO, who will review our financials. Ken?

[Ken Myszkowski, Chief Financial Officer]

Thank you, Chris, and good afternoon, everyone. As we reported today, our net loss for the quarter ended December 31, 2017 was $13.2 million, or $0.18 per share based on $74.8 million weighted average shares outstanding. This compares with a net loss of $12.1 million, or $0.17 per share based on $71.4 million weighted average shares outstanding for the quarter ended December 31, 2016.

Revenue for the quarter ended December 31, 2017 was $3.5 million, compared to $4.4 million for the quarter ended December 31, 2016. Revenue in each period relates to the recognition of the upfront payments received from our collaboration and license agreements with Amgen. Of the total upfront payments of $35 million, all but $1.9 million has been recognized as revenue to date, and the remainder is anticipated to be recognized over the next nine months.

Total operating expenses for the quarter ended December 31, 2017 were $17.3 million compared to $19.3 million for the quarter ended December 31, 2016. This decrease is primarily due to the discontinuation of our previous clinical trials in late 2016.

Net cash used in operating activities during the quarter ended December 31, 2017 was $14.7 million compared with net cash provided from operating activities of $10 million during the quarter ended December 31, 2016. The key driver of this change was the $30 million upfront payment received from Amgen in 2016, associated with our ARO-LPA collaboration and licensing agreement.

Turning to our balance sheet. Our cash and short-term investments totaled $50.7 million at December 31, 2017, compared to $65.6 million at September 30, 2017. The decrease in our cash was primarily driven by cash used in operating activities. In January 2018, we completed an equity financing issuing 11.5 million shares, which resulted in $56.8 million of net cash proceeds to the company.

This financing along with our existing cash and short-term investments provided us with more than $100 million of liquid assets, which will allow us to continue to advance our pipeline through the clinic for many quarters.

Our common shares outstanding at December 31, 2017 was $74.9 million.

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

[Christopher Anzalone, President and Chief Executive Officer]

Thanks, Ken. We have great expectations for 2018, and believe that the company you will see this time next year will be substantially different than the one you see today. We believe that we are the fastest and most innovative company in the field, and because of this, we’re at the door of disruptive opportunity to change medicine and public health in a variety of areas. To both new and existing investors, we think we can accomplish a lot together. We sincerely thank you for joining us.

I would now like to open the call to questions. Operator?

[Operator]

Thank you. [Operator Instructions] And the first question comes from the line of Katherine Xu of William Blair. Your line is open.

[Katherine Xu, William Blair]

Yes. Hi, good afternoon. Well, congrats on the rapid progress. But I just want to ask maybe if you could elaborate how come the – you can beat your guidance by that much with the CTA filing, and also how the tox studies have been going, including this GLP tox apparently that’s a very important part, which is safety on the new – on the TRiM platform that people are concerned about?

[Christopher Anzalone, President and Chief Executive Officer]

Thanks. Bruce, do you want to take that?

[Bruce Given, Chief Operating Officer]

Sure. Hi, Katherine. We certainly had to play perfect baseball, so everything had to go kind of flawlessly with the tax program, everything had to go flawlessly with the manufacturing program. And because of that, I think, we in the end, we had to set guidance not necessarily expecting perfection.

We, of course, internally most people when they give guidance, they necessarily mean kind of the end of the quarter, I think, with our AAT guidance, we were thinking that maybe we would be submitting our CTA sometime in January or so and with HBV, we were thinking maybe in the April timeframe. And we just were able to execute in such a way that we were – we’re able to beat those guidances with both of those CTAs going in essentially between the middle and the last-half of December of last year.

But we pushed hard to get those in early, because we wanted to get into the queue for evaluation early in 2018. We felt that even delayed into January, we ran the risk of not making it into the first set of evaluations by the IRBs and regulatory authorities. So it was worth it to us to really push people very hard and do a lot of work in parallel with instead of in series and by doing that, we were able to achieve pretty extraordinary results.

[Katherine Xu, William Blair]

Then the tox observation so far?

[Bruce Given, Chief Operating Officer]

Well, we’re comfortable with them, that the final arbiters of tox are always the IRBs and the reviewers from a regulatory perspective. But we felt comfortable with our submissions and we continue to feel comfortable. But we tend not to give detailed review of our GLP tox and that’s pretty true usually in industry as well, I think.

[Christopher Anzalone, President and Chief Executive Officer]

But we can tell you broadly, look, our confidence in these drugs weren’t changed by the GLP tox findings. It was consistent with what we expected.

[Bruce Given, Chief Operating Officer]

Yes, we weren’t surprised.

[Katherine Xu, William Blair]

Okay. And then is it fair to expect some proof of concept data from both the AAT and HBV program as far as the end of the year and potential partnership deal for the – for some other programs during 2018?

[Christopher Anzalone, President and Chief Executive Officer]

Yes. So we’re not prepared to give guidance on proof of concept data yet, because we still have not yet started dosing patients. Let’s get final approval by the IRBs and final approval by the regulatory agencies and we’ll start dosing patients at that point. I think, we can – we’ll be better positioned to give good firm guidance. It is our hope, as I mentioned, early in the prepared remarks that we can finish dosing both of those studies into – in calendar 2018. And so just give us some time on listen once – and we’ll provide guidance once we start dosing.

Sorry, what was the other question?

[Bruce Given, Chief Operating Officer]

Partnerships?

[Christopher Anzalone, President and Chief Executive Officer]

Partnership, yes. Similar – similarly there, look, I think that we have a good chance of getting an important collaboration done this year. But you really can’t give guidance on that, because that’s out of our control. I think, what is within our control, building up this TRiM platform, demonstrating that it is active and that it appears to be well tolerated.

We’re doing all those things and we feel good about it. And I think that we have some targets that are potentially interesting to partners. And so everything we can do we’re doing. And now, we’ll just see, if we can bear some fruit this year. It is certainly our hope that we can do that.

[Katherine Xu, William Blair]

All right. Thank you.

[Christopher Anzalone, President and Chief Executive Officer]

Sure.

[Operator]

Thank you. And our next question is from the line of Keay Nakae of Chardan. Your line is open.

[Keay Nakae, Chardan Capital Markets]

Yes, thanks. With respect to potential partnerships, especially for the cardiovascular [indiscernible] patients, is the numbers you’ve disclosed from the Amgen partnership, is that what we should be thinking about if you’re able to partner those given the fact that you expect to file the CTAs around the end of this year?

[Christopher Anzalone, President and Chief Executive Officer]

Yes. I appreciate that question. Thanks very much, but not one that I can answer. A, I don’t – here’s is what I think. I think that APOC3 and ANGPTL3 are good targets, I think, they’re good validated targets that should be of interest to a big pharma – to big pharma and that they could be attractive targets for partners, I believe that.

When can we get a partnership done? Can we get a partnership done? I don’t know the answer to that. And so, speculating on timing of that is just – is not something that I’m going to do at this point. Similarly, I really can’t speculate on should that happen, I really can’t speculate on what the economics would be. Some of that will depend upon the time of partnership, of course, the longer we hold onto these potentially, the more valuable they could be. So there are just too many variables there unfortunately to really speculate on.

[Keay Nakae, Chardan Capital Markets]

Okay. That’s all I have. Thanks.

[Christopher Anzalone, President and Chief Executive Officer]

Okay. Thank you.

[Operator]

Thank you. [Operator Instructions] Our next question is from the line of Madhu Kumar of B. Riley FBR. Your line is open.

[Madhu Kumar, B. Riley FBR, Inc]

Hey, guys, thanks for taking my questions. So my first question relates to the APOC3 program. So looking at the indication space for APOC3, how much do you think you would pursue to kind of orphan indication just so your competitors have gone pretty far down the development pipeline in right now versus the kind of bigger ticket cardiovascular indications?

[Christopher Anzalone, President and Chief Executive Officer]

Yes. So let me take a first crack at that. One of the things we like about APOC3 is that, it gives us multiple regulatory pathways. If we were to hold onto this for ourselves, it clearly make more sense for us to focus on orphan indications. Whereas, if a partner were to take this, it may make more sense to go after large cardiovascular markets and go ahead and invest in a large outcome study. So I think, ultimately, which route we take will depend upon who takes us forward, I think.

[Madhu Kumar, B. Riley FBR, Inc]

Okay, thanks. And remind me, did Amgen – were they – was – were they shown C3 and angiopoietin-like 3 as part of the partnership?

[Christopher Anzalone, President and Chief Executive Officer]

No. So we started talking to Amgen quite some time ago about Lp little a and about the undisclosed target, that was before we had any program in ANGPTL3 or APOC3. So these are relatively new.

[Madhu Kumar, B. Riley FBR, Inc]

And one last. Will there – remind me if I missed this. Will there be 520 or 521 data kind of follow-on data diesel?

[Bruce Given, Chief Operating Officer]

Yes. I think, we may see some 520 data. I don’t think we’re going to see 521 data just because that that study really got stopped so early. What data we had got presented, I think, it must have been Easter last year when we presented what data we had, but it was quite sparse. Enough to be very tantalizing, but we don’t have more of 521 data sort of hiding out some place. We pretty much showed everything we had.

[Madhu Kumar, B. Riley FBR, Inc]

Okay, great. Thanks for taking my question. Let’s have a great weekend, guys.

[Bruce Given, Chief Operating Officer]

Thanks very much. You too.

[Christopher Anzalone, President and Chief Executive Officer]

Take care.

[Operator]

Thank you. And at this time, I’m showing no further questions. I’d like to turn the conference back over to Chris Anzalone for closing remarks.

[Christopher Anzalone, President and Chief Executive Officer]

Thanks very much, everyone. Thank you for joining us on our call today, and we will see you next quarter.

[Operator]

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.