Arrowhead Pharmaceuticals, Inc. (ARWR) Earnings Call Transcript & Summary

Hi, Good morning. This is Chi Fong. I'm one of the associates from Jason Gerberry's midcap biotech and spec pharm team here at Bank of America. Today I'm pleased to be joined by Chris Anzalone, CEO of Arrowhead Pharmaceuticals. And Chris, thanks for taking the time to speak with us today. Pleased to have you here with us. Maybe to start, maybe for those in case -- who may not be aware of the company, can you talk about -- a little about the company, what it does and where the company is at in terms of development stage and maybe some of the overall -- maybe like a broad view of the pipeline programs. Thank you.

Sure. Well, thanks very much, Chi, and thank you for inviting us today and enabling us to have investor meetings, and then of course this fireside chat. It's really a pleasure to be here. So we are Arrowhead Pharmaceuticals. We're an RNAi company. I think that this is a really exciting year for us for a few reasons -- first, that we are just entering, I think, the golden age of RNA interference. It is an increasingly validated modality that is appearing to be quite robust and reliable. And this is the year I think that we take RNA interference outside the liver. The field has made great advances in getting pretty good at knocking down target genes within hepatocytes, and we've got leading programs there, to be certain, but I think that the big story of 2020, at least for us, is bringing the promise of RNA interference outside the liver and really to where other diseases might be. We have, for instance, filed an IND for our first solid-tumor-targeting program. We did that in December. We expect to start dosing patients -- these are renal cell carcinoma patients -- we expect to start dosing them this quarter. We have recently filed a CTA to begin our first inhaled program for lung delivery. We expect to be treating cystic fibrosis patients also, probably, this quarter. And then early next year, we expect to file the CTA for our first muscle-targeted program. And then I also wouldn't be surprised if sometime later next year we start talking about the next cell type. And so it's a really -- again, it's a really exciting time to be in RNA interference, and I think that we are at the forefront of expanding the reach of RNAi into a number of new indications. And we think we are pretty close to having about 10 clinical candidates, and I think we can double that over the next several years. And so we're building a broad and deep pipeline with a mixture of earlier to mid- and some later-stage clinical programs.

Awesome. Maybe as you think about expanding your pipeline program, curious what's your philosophy, what's the company philosophy on business development and corporate strategy? Curious how you arrive at this initial -- for each program, whether you want to pursue a partnership or you want to go it alone and develop it all the way through market.

Yes, that's a great question, and it's a big part of what we think about every day. So we've got this embarrassment of riches. As I said, we will shortly have 10 clinical programs, and I think we can double that to 20 in the next few years. So clearly, no company, much less a company our size, but no company can commercialize a pipeline that is that broad and that deep. And so business development is an important part of our strategic focus. We are well capitalized right now, and so I think we've got the luxury of not running into a partnership when it's not quite right. I think we can be opportunistic about the partnerships that we get into in terms of who the right partner is, what the economics are and what the right timing of those kind of partnerships would be. Right now we've got 2 partnerships, 1 with Amgen. We licensed to them a clinical candidate against the target Lp(a) against cardiovascular disease. They have, as I understand it, completed a Phase I and plan to start a Phase II study in the second half of this year. We think this is a really important new tool against cardiovascular disease, and as with all of our candidates, we were the first RNAi player, and actually, I think still only RNAi player, against this target. And so now with Amgen, we're doing that. And it's been a very important partnership. We think that's an important asset that is in good hands right now with Amgen. The other partnership we have is with Janssen. That's a hepatitis B partnership, as well as 3 additional targets. We licensed to them a clinical-stage hepatitis B therapeutic that they have moved now into 2 Phase IIb studies. We think they're doing a really, really good job building those clinical programs. We also have a -- also part of that partnership is that they are bringing to us 3 additional targets that we will develop candidates around, and they will develop those and commercialize them eventually. We're working diligently with them on all 3 of those targets as we speak. The reason I bring both of those up is that they -- I think they're good examples of why we would like to do partnerships. First reason, of course, is economics. Ultimately, to make this a very large biotech company, and at some point, I think, a large pharma company, we of course have to commercialize our own products, and that's an expensive process. And so we view partnering as a source of nondilutive capital that is important to our strategic focus. So that's first, capital. Second is bandwidth. We've got, as I said, 10 clinical programs shortly, and we'll build that 20 in a few years. We really -- as fast as we have been, we've got a large pipeline that takes bandwidth to continue to develop these clinically and eventually commercialize. And so we need help on bandwidth, and so a partnership, of course, is important there. And then finally, there are companies with deep core competencies in certain markets that are attractive to us. Janssen is a great example with hepatitis B and Amgen's a great example with cardiovascular disease. It makes sense for us to leverage their experience and abilities in those areas so we can get those drugs to the patients who need them.

Awesome. So I'm just curious, as you're looking to different metrics and timing and whatnot, is there sort of, like, when you look at a program, how much does therapeutic area, market size and how much commercial infrastructure you need to commercialize the product and sort of their indications, how much do these parameters play into whether you choose to develop a program out of each market versus maybe some of the -- what I'm hearing, potentially, maybe some of the indications where it requires, maybe, a larger indication where maybe a partnership makes more sense? Just curious to hear your thoughts on that.

Yes, we think about all those things. And of course, those are dynamic. The way we view our ability to address a certain market today will be vastly different than the way we think of that a few years from now. And I'll give you an example. So with Lp(a), we knew from the get-go that this -- that that was -- that that should be partnered. We were a much smaller company back then. We viewed this as a really important target that could address many tens of millions of potential patients with elevated Lp(a) levels and help them with -- reduce their risk of cardiovascular disease. It was hard for us to imagine, back several years ago now, building up the infrastructure to do a cardiovascular outcome trial, which I believe is going to be required for this kind of candidate. And so it was only a matter of time, from our perspective at that point, that we would partner that program. And again, Amgen came along, and I think they were a near-perfect partner for that program. But the reason I bring that up is that these concerns are dynamic. We now have 2 additional cardiometabolic programs, 1 against the target APOC3 and 1 against the target angiopoietin protein 3. The candidates are ARO-APOC3 and ARO-ANG3. The reason I bring these up is that both of these are -- have -- can address, potentially, very large markets and could require, if we went after certain market segments, could require cardiovascular outcomes trials. And at this point in our life history, I think that it's not crazy for us to think about that. When we did the deal with Amgen, we couldn't think about that, but now we've got substantially more capital, we've got larger infrastructure, and we can now consider doing these larger studies. Now, will we do them? I don't know the answer to that, but it is not out of the question. So again, we do think of all those parameters, market size, what we have to build in terms of infrastructure and expertise to address a certain market, synergies among our other products. We think about all those things, but that's an ongoing process, and how we view a candidate today will be different than how we view it in the next several years. And that's also why I think being well capitalized is important. We can -- so we can continue to develop programs as we develop other capabilities and we can then think about really holding onto some candidates that we maybe could not have even imagined holding onto 2 years prior.

Awesome. Since we are on the topic of some of these other programs, maybe we can jump onto the ANGPTL3 program first. Maybe can you talk a little bit about the program? What's the patient population you're looking to address, market opportunity, and how do you view your approach as differentiated versus what is on the market and what is in the pipeline?

Sure, yes. So ARO-ANG3 against angiopoietin-like protein 3 is, we think, a fascinating candidate and a fascinating pathway. So here's what we know. We've got good data in healthy volunteers and now in patients where we are looking at LDL levels, as well as triglycerides, and we mentioned, I guess, on the conference call several months ago, some early patient data that after just a single dose -- and these are subcu doses, by the way -- after just a single dose, we saw reductions of LDL of about 40%. And these are in patients who are on statins or on PCSK9 inhibitors. And so it's 40% of additional reduction of LDL after those therapies. And we saw about 80% reduction in triglycerides. So we view that as really powerful for a large swath of patients who are -- who have mixed dyslipidemia issues. So these are patients who are not meeting their LDL goal and have elevated triglyceride levels. There has just been no way to treat patients like that in the past, and we think there's probably 10 million to 15 million of them, and we think in one fell swoop, ARO-ANG3 can do that. That's the good news. The bad news is that will likely require a cardiovascular outcomes trial that could be large and could be expensive, although I'll tell you, I think that companies like Amarin and The Medicines Company have shown the world that smaller companies can do these CVOTs in smart ways and in less than -- and in ways that are not quite as expensive as big pharma has generally done them in the past. So I think it's not out of the question that we could pursue that, but again, we look -- we take that very seriously because we think it's a very important asset, and if we were to not partner that we would have to make darn sure that we believe that we can execute on this. We're still the only RNAi player against this target, so we're well positioned there. We would compete against antisense oligos. We think we would outcompete them quite well. We believe that we'll have better dosing schedules than them. I think that this drug could be dosed once every 4 or 6 months, whereas the antisense are probably dosed once a month. And we also think we win on safety. Antisense oligos as a class have had thrombocytopenia issues, and we don't see that same issue within RNA interference, so we think we're in good shape there. And then of course there are antibodies, and we think we win on dosing schedule there as well. Rather than a once-a-month IV infusion or maybe a once-a-week subcu injection, again, where I think we're talking about once every 4 or 6 months, a subcu injection. But I think we sit well there. It's a large market that is underserved right now that we're excited about. And I think that we can be in a Phase IIb study in the first half of next year in that program.

Awesome. I guess, when you say you can have a Phase IIb starting first half of next year, when could we possibly expect data next? And what would be the focus of that data set?

Yes, that's a great question. We have -- I expect a full data set this year. And that study is fully enrolled. I want to say -- I could be wrong about this, but I want to say it's about 93 patients, all in. Again, they're all enrolled and we're following them. We have been accepted at 2 different conferences this year to present data. That's all up in the air these days, who knows if those conferences are going to happen or if they're going to be continued to be postponed, but we have slots there. We have committed that if there is not -- if the medical conferences are not happening this year, then we'll find other ways to push those data out. But again, the take-home message is, by some means, we will have full data sets -- a full data set for that drug. The challenge there in terms of timing is that these drugs, as with -- this drug, as with all of our drugs, are quite durable. And so it just takes a while to continue to follow patients to know -- to complete these Phase I/II studies, but we expect that to be this year.

Great. I think I am always curious about how there's -- in terms of cardiometabolic, it seems it's pretty common for, at least from what we have seen from RNA, from the entire -- sorry, ASO space and from you guys as well, you have the ANGPTL3, you have the APOC3. Since a lot of these programs are also designed to reduce triglycerides, maybe can you help frame what's the difference between all the different programs? Are they talking in the same patient population? What is different about each? I mean, are they -- what's the intrinsic difference between the different patient populations that you're targeting?

Sure, yes. That's a great -- yes. No, look, it's a great question. There are clear -- there's clearly some overlapping here. So first just broadly, I think that we are in a really interesting time for treating cardiovascular disease. For decades, this has been a story about LDL and only LDL. For a couple of minutes there it was a story about HDL, until that sort of fizzled out. And so it's been a story of LDL, primarily because we just didn't have any other tools. But now we're entering this time where we know that Lp(a) levels can be an independent risk factor of cardiovascular disease. We know that triglyceride levels can be an independent risk factor of cardiovascular disease. And so now we have tools to modulate those in patients and really give physicians a much larger toolbox to deal with these remaining risks. And again, I think we're at -- I think that Arrowhead's at the forefront of this. Our Lp(a) program, our ANG3 program, our APOC3 program, these are all the first RNAi programs in those -- against those targets. So having said all that, when you look at ANG3 and APOC3, they both do lower triglycerides. We view ANG3 as our broader market drug because it also lowers LDL. And we're still waiting for data on liver fat and insulin sensitivity. Animal data have suggested that you could see improvements there. We don't know if that translates to humans yet, so we'll see on that, but at the very least, lowering LDL and triglycerides, we view that as going after those 10 million to 15 million patients with mixed dyslipidemia. We then look at APOC3 as more of our pure-play triglyceride reducer. We showed in patients in early clinical data after just a single dose of ARO-APOC3 that we are decreasing triglycerides by about 95%, which is just stunning. These are patients with trigs in the thousands, and so lowering it that much, we think, is really clinically meaningful. So when we look at who we can help there, we think of those patients with severe hypertriglyceridemia, so above 1,000, say -- maybe 880, something like that -- who have a history of pancreatitis. The biology of that is reasonably clear, that if you can lower those trigs you can decrease the incidence of pancreatitis. We think we have an awful lot to offer there, and we think that if you include both the very small population of FCS, or familial chylomicronemia syndrome, patients with the broader market of folks who have -- who are hypertriglyceridemic for polygenic reasons, if you include all those, we're probably talking around 30,000 potential patients in the U.S., and I think that we could have a substantial -- we could play a substantial role in improving their lives. You then could broaden that market out a little bit and look at people with triglycerides above, say, 500. This is a population that Amarin studied with Vascepa. They were showing, I think, in severely hypertriglyceridemic patients, lowering trigs by about 30%, but most people around 18%. Again, I think we'll be lowering trigs by 95% in this population, so I think that if you can address the over-500 population, and we think that's probably 600,000 or 700,000 people in the U.S., we think if you address that, that we could play a good role in their healthcare because the data are pretty clear that as you increase trigs over 500 there are substantial increases in healthcare costs, and of course, decreases in quality of life.

So I'm curious, you said you're waiting on the liver fat data. Curious, if you do see reduction in liver fat, how does it broaden your indication pursuit for the ANG3 program?

Yes, so we don't -- it's a good question. We don't see this as a NASH drug per se, but if you do see, at least in some patient segments, an improvement in insulin sensitivity and decrease in liver fat, you could think about this as treating NAFLD or metabolic syndrome, something like that. It's -- again, it's too early to tell if this will translate. The animal data were compelling, but Ionis have shown or have talked about data that did not see differences in liver fat and insulin sensitivity, and so it could be that this doesn't -- this effect doesn't translate into humans. But we haven't seen their data and we haven't seen our data yet, so we'll have to wait to see. The good news here is that this is a powerful drug, I think, based solely on lowering LDL in a non-LDL receptor-mediated fashion, so again, it can work on top of statins, on top of PCSK9 inhibitors, and also a pretty potent triglyceride-lowering drug.

Got it. I want to spend some time on the Alpha-1 liver disease indication, AAT program. Maybe can you talk a bit about the program, again, what's the unmet in the space, how you view your approach as differentiated than what is on the market and pipeline?

Sure. So there's -- right now, there's no way to treat the liver disease associated with the Alpha-1 antitrypsin deficiency short of liver transplant. And so we viewed this as a place that we could really make an impact on people's lives because the biology is pretty clear here. We know that in these patients, there is a mutation that causes the AAT protein to be misfolded and therefore not properly exported from the liver. The liver makes about 2 grams of this a day, so over time you can imagine this could become inflammatory as the liver continues, every day, to make 2 grams a day, 2 grams a day, 2 grams a day, and the protein can't export well. These proteins polymerize and can cause globules and over time can cause liver disease and death. So our Phase I study was pretty clear. We -- it looks like we were nearly completely suppressing hepatic production of AAT. We are now in a Phase II/III study, as well as a parallel open-label study. The Phase II/III study, we have agreed upon approval endpoints with the FDA that is based on histological changes over time, and the open-label study is designed to kind of give us a window into what's happening in the blinded, potentially pivotal study, and without breaking the blind on that. And we expect to have our first data from that open-label study this year, and it will be in the form of 6-month biopsy data where we'll be looking at monomer content, polymer content, and also probably looking at some inflammation markers to see if those have changed in 6 months. It'll be interesting to see that because this is going to be the first time anyone has shown data like this before. And then we will continue to follow patients out and we'll have biopsy data at 12 months, 18 months and 24 months over the next couple of years. So that'll be interesting to see how that plays out, and I think that that should read on what's happening with the pivotal study.

Chris, I think I remember from maybe your prior calls, you think for this indication it takes about 2 years to see what you believed you needed to see, to see the beneficials in terms of clinical endpoints. Just curious, your thoughts in terms of with all the inflammation biomarkers and whatnot that you're going to analyze in 6 months. Can you sort of elaborate what will be the key focus that could potentially help de-risk your ongoing Phase II/III study?

Right. So the short answer is we just don't know how long it'll take to see clinical differences. No one's been able to do this before, and so we're flying a little bit blind here, which again is why we've got the open-label study next to the pivotal study. We would expect -- after just 6 months, we would expect good, deep reductions in the monomer. We just don't know about the polymer. We don't know how long it takes for that to metabolize. No one's ever studied it. And so I don't know -- we don't have much in the form of expectations for polymer. Same thing with inflammation markers. We -- I guess you could look at NASH as an example, but that's a multifactorial disease, whereas this is really a single factor that is causing this disease. And so who knows how long it takes to see some clinical benefits when you're turning this protein off. We'll just have to find that out. But again, what's helpful about the open-label study is that a, it gives us something that we can talk about with the Street and gives us some knowledge internally about what we think is probably happening in the blinded pivotal study, but also, and maybe more important, is that it gives us a tool to go speak with the FDA. Should we see healing that is faster or slower than we expected, we could go to the FDA with those data and say, look, we think that we should either shorten or lengthen the pivotal study.

This is helpful. Thanks for the color. And we follow the ASO space as well, and part of the topic that we always want to reach program is when you have a target you want to knock down, what level you think you need to knock down the target to achieve therapeutic level. And then the flipside of the coin is, can you knock down a particular target too much to have any threat to safety effect? So as it pertains to the AAT program, can you touch upon those topics?

Yes, that's a really good question. And so we generally -- I don't like the idea of trying to modulate the expression of a protein. That's too difficult and maybe too variable. And so the targets that we are interested in will be those that have some threshold. It's nice if it's got a low threshold, so in other words, if you just knock it down 50% you see a benefit, that's great. But we don't like -- it's hard for me to imagine going after a target where, if you knock it down too much, something bad will happen. Again, it's just too hard to control that. So as it relates to AAT, AAT liver disease, we think the more knocked down, the better. Kind of with hepatitis B, the more knocked down, the better. And like I said, our -- the data from our Phase I suggests that we're probably nearly completely suppressing hepatic production of AAT, and that's ultimately going to help, I think, the liver heal faster than if we were getting lesser knockdown.

Great. I want to spend the last couple of minutes on maybe some of the other programs. I know you guys have aerosol RNAi in development. Maybe -- I think it's with the ENaC program in cystic fibrosis. Maybe talk about, outside of that, in what area, where there's therapeutic area indications, do you think an aerosol RNAi can be utilized on?

Sure. So we're really excited about our lung franchise. We view that -- our ability to deliver to the lungs as a franchise into itself, and we intend to go after a number of targets against a number of indications, including COPD and asthma and IPF. So we view that as a substantial value driver for us. And as I mentioned early in the call, we have a clinic-ready program right now called ARO-ENaC that is against cystic fibrosis, and I expect we'll be dosing this quarter. So what we have in that pipeline or right now is ARO-ENaC against CF. We just mentioned at our most recent quarterly conference call that we've got a follow-on lung program that right now we're just calling Lung2. We have not disclosed the gene target, but it's against COPD. I think that we could be filing a CTA for that one at the very end of this year, so I think that's pretty near-term. And then we also disclosed for the first time at our conference call last week that we are developing a COVID-19 program, and more broadly, a program against other coronaviruses. We've gotten really good at delivering to the lung via inhalation, and I think that there are an awful lot of important targets and indications that we can go after, so I think that's a -- that will be a big source of our pipeline growth over the next several years.

I guess last question in the last minute. And you did some -- it's pretty difficult to get to target outside the liver, particularly for RNAi, seems to be a new territory. Just curious, how was Arrowhead able to target the pulmonary epithelial cells when other programs, it seems to be, have had some trouble with it?

Yes, that's more than a 1-minute answer. So here's the short story, and here's the broader story. So we are able to get not only into the lungs but, as I talked about, we can -- I believe now we can get into solid tumors, we can get into pulmonary epithelial cells, and then next year we'll be able to get into skeletal muscle, and then again, I wouldn't be surprised if we were talking about a new cell type sometime next year as well. There are 2 big components of that, broadly speaking. One is identifying the right ligand receptor pairs to enable us to shuttle into various cell types preferentially. We've been working on that sort of philosophy and that sort of work for a decade because we always viewed getting outside the liver as an important step for RNAi. So it is those pairs, and the linker chemistry has allowed us to do that. It is not simple, but it is something we've been focused on. And the second is a bit more esoteric, but quite important, which is our ability to design very potent RNAi molecules. With delivering to hepatocytes, you can get a fair amount of tissue into those cells via GalNAc, and so you can be a bit fat and lazy and you don't have to be hyperpotent to make a drug that could work. When you're getting outside the liver, you're going to get a vanishingly small amount of material into these cell types, and so you really need to have very potent RNAi triggers. And we have a set of algorithms and rules and such that are proprietary and that I think really distinguish us from our competitors and enable us to make these very potent triggers that may not be -- that they may not look potent in vitro but are potent in vivo. So I think those 2 components are the critical keys to getting outside the liver, whether it's the lung or muscle or solid tumors.

Awesome, thanks so much. I know we're up against our time, Chris, so thanks again for taking the time to speak with us today.

Yes, thank you very much.

Thank you.