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

Ladies and gentlemen, welcome to the Arrowhead Pharmaceuticals conference call. [Operator Instructions] I will now hand the conference over to your speaker today, Mr. Vincent Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, Vince.

Thank you, Justin, and good morning, everyone. We're happy to announce today that Arrowhead and Takeda have signed an agreement whereby the 2 companies will co-develop and co-commercialize Arrowhead's investigational ARO-AAT candidates against Alpha-1 liver disease. Our President and CEO, Dr. Christopher Anzalone, will provide an overview of the deal. James Hassard, our Chief Commercial Officer, will discuss why we think Takeda is the ideal partner for ARO-AAT. And Dr. Asit Parikh, Head of Takeda's Gastroenterology Therapeutic Area unit will talk about why they are excited about ARO-AAT. We will then open up the call to your questions. Also with us today for the Q&A portion of the call are: Ken Myszkowski, our Chief Financial Officer; Dr. Javier San Martin, our Chief Medical Officer; and Patrick O'Brien, our General Counsel. 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 by Arrowhead or our partners. 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 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 Christopher Anzalone, President and CEO of the company. Chris?

Thanks, Vince. Good morning, everyone, and thank you for joining us today. Earlier today, we announced that Arrowhead and Takeda signed an agreement to co-develop and co-commercialize ARO-AAT, our second-generation investigational RNAi therapeutic being developed as a treatment for the rare genetic liver disease associated with alpha-1 antitrypsin deficiency. Per the agreement, Takeda and Arrowhead will co-develop ARO-AAT, which, if approved, will be co commercialized in the United States under a 50-50 profit sharing structure. Outside the U.S., Takeda will lead the global commercialization strategy and receive an exclusive license to commercialize ARO-AAT with Arrowhead eligible to receive tiered royalties of 20% to 25% on net ex-U.S. sales. Arrowhead will receive an upfront payment of $300 million and is eligible to receive potential development, regulatory and commercial milestones up to $740 million. We are thrilled to have Takeda as a partner for this program and believe that this structure provides the best opportunity for patients around the world to gain access to what we believe could be first-in-class, potentially important new medicine while maximizing the probability of success for both companies. I want to talk briefly about the ARO-AAT program before discussing what the deal means to Arrowhead. We've always been confident in the potential of the ARO-AAT program to help patients with alpha-1 liver disease who currently have no approved therapies. Our preclinical data in the transgenic PiZ mouse, which recapitulates many aspects of the human AATD-associated liver disease showed that our RNAi-based intervention could achieve good target engagement and dramatically reduce the hepatic production of the mutant Z-AAT monomer. Sustained treatment in this model reduced hepatic Z-AAT polymer, restored endoplasmic reticulum and mitochondrial health, normalized expression of disease associated genes, reduced inflammation and prevented tumor formation. Further, we found that young, middle-aged and older mice all benefited from treatment, suggesting that there may be a broad range of patients for whom ARO-AAT may be helpful. In addition to our preclinical work, the clinical program for ARO-AAT has given us increased confidence in its potential to help patients. Our Phase I study in healthy volunteers showed that ARO-AAT treatment led to a rapid reduction in circulating AAT levels with a duration of effect that should enable quarterly or less frequent dosing. In fact, most dose levels reduce circulating AAT to below the lower limit of quantitation, suggesting that it may have achieved near complete suppression of the liver production of immune protein. We think this is an important differentiator against other approaches that will likely not see the same level of activity. Our belief is that the closer you can get to full suppression of Z-AAT production, the higher the chance that the liver will be able to break down and clear the high levels of accumulated Z-AAT, which is the cause of progressive liver disease and ultimately allow the liver to heal itself. To that point, we recently announced interim 24-week liver biopsy results in 4 patients from the Phase II ARO-AAT 2002 open-label clinical study. The results demonstrate what we believe to be important pharmacodynamic effects by ARO-AAT leading to improvements in relevant biomarkers, including substantial reductions in the intrahepatic mutant Z-AAT protein, both Z-AAT monomer and Z-AAT polymer; improvements in liver stiffness based on FibroScan; and a decrease in ALT and GGT, both serum markers -- both serum biomarkers of liver injury. These were extremely exciting results to us at Arrowhead as well as the Takeda, the investigators whose patients are participating in the study and members of the Alpha-1 community. Based on these important data, we are actively assessing our clinical and regulatory path forward, including engaging with the U.S. FDA and other regulatory agencies to identify areas where the program could potentially be streamlined and accelerated. Our late-breaker abstract has been accepted, so we intend to present more details at the AASLD Liver Meeting in November. So even though our confidence in ARO-AAT has been high all along, our conference level took a big leap forward when we saw the results I just mentioned. As such, it's clearly time to move forward with commercial planning. Our broader strategic plan has always included a substantial commercial presence. And earlier this year, Jim Hassard joined Arrowhead as Chief Commercial Officer. As he has built out his team, we have been focused on determining markets where we want to commercialize drugs ourselves and where we want to co-commercialize with the right partners. Given the depth and breadth of our pipeline, this is at once an important and complicated set of decisions. As we considered ARO-AAT, a few things became immediately clear. A global company that is in the AAT enzyme replacement business and has existing infrastructure relationships and deep experience in GI and other rare diseases could be a powerful partner. Such a company could help maximize the value of ARO-AAT by helping to accelerate time to approval, enabling a faster and smoother launch, decreasing commercial costs by leveraging existing sales channels and expanding the population of addressable patients. We think there is no partner in the world better suited than Takeda to help move ARO-AAT forward and bring it to the patients who need it. We also believe the deal structure reflects the substantial amount of value we have created and it gives Arrowhead and our shareholders an attractive share of the future economic opportunity. Jim will discuss the strengths of Takeda as a partner in a moment, but I want to talk a bit more about the deal, why it's important to Arrowhead and how it supports our strategic commercial focus areas moving forward. First, I want to provide a little more color on the potential milestone payments associated with the deal. In addition to receiving $300 million upfront, this deal potentially provides Arrowhead with a substantial amount of non-dilutive capital upstream of a potential approval and launch and then potentially an ongoing stream of revenue with a 50-50 profit sharing structure in the U.S. and 20% to 25% tiered royalties on sales outside the U.S. Approximately 40% of the $740 million of potential milestones are for development and regulatory events that may be achievable in the near to midterm. That's an important point for Arrowhead, our balance sheet and our need for outside capital in the future. This makes our already strong financial position even stronger and further decreases our reliance on the capital markets to fund development of our platform and growing pipeline. Remember that we have partnerships with Amgen and Janssen that may also be sources of capital as products progress in clinical trials, and similarly, may also be ongoing streams of revenue if the candidates are ultimately approved. One of the big advantages of RNAi and our TRiM platform specifically is that it enables us to discover and develop a broad range of therapeutics against many different disease areas. We are RNAi specialists and clear leaders at bringing RNAi to diverse cell types, enabling us to address an increasing number of unmet medical needs. Consequently, we are faced with a very good but challenging problem. How do we handle the sheer number of drug candidates we are generating from a clinical development and commercial standpoint? We expect there to be 10 TRiM enabled drug candidates in clinical trials by the middle of next year. We also expect to introduce 2 to 4 new candidates into clinical studies every year, so we could double that to 20 in 3 to 4 years. We have built a lot of value this way. I don't believe there is any company remotely our size that is building a pipeline even half as large and as potentially valuable as ours. Going forward, we will either have to slow down our pipeline growth or find good partners to help develop and co-commercialize some of our drug candidates. We obviously have no intention of doing the former. This deal with Takeda is a good example of our limited partnering strategy. We expect ARO-AAT to be a substantially more valuable drug that helps more patients with Takeda as a partner. It is also a step in an ongoing process towards rationalizing our growing pipeline. We intend to find good partners for a limited number of TRiM-enabled drugs and build a commercial organization that addresses multiple disease areas efficiently by focusing on synergy and leverage. As we look at our current and expected pipeline over the next couple of years, we see attractive opportunities to build deep commercial expertise in cardiometabolic and pulmonary therapeutic areas. That doesn't mean that all products in those areas will be developed commercially ourselves. And it also -- and also, the products not in those areas will be partnered. Rather, it should be viewed as our focus areas and what we will be building infrastructure to support in the near term. Given the broad potential of the TRiM platform and the fact that we expect to be able to address a new cell type every 18 to 24 months, we certainly expect this to expand in the future. So strategically, this deal with Takeda could not have come at a better time. The ARO-AAT program is moving toward commercialization rapidly. Our cardiometabolic candidates, ARO-APOC3 and ARO-ANG3 are progressing toward Phase IIb studies, and we are approaching clarity on what the pivotal studies may look like and when they may begin. Our pulmonary program -- our first pulmonary program, ARO-ENaC is moving toward a potential data readout in the first half of 2021 with additional new pulmonary candidates behind it that are approaching clinical studies, and our large and growing pipeline outside of those areas continues to provide additional opportunities to create value. With that overview, I'd now like to turn the call over to James Hassard, our Chief Commercial Officer. Jim?

Thanks, Chris. Good morning, everyone, and thank you for joining us today. As Chris mentioned, Arrowhead is now at a point where we would need to move forward with commercial planning and build out to support the future launch of ARO-AAT. We would need to do this in a way that is: first, cost effective; second, comprehensive; and third, ensures the broadest patient access to this important new medicine. We had already begun the analysis process, and we're developing a plan to accomplish these 3 priorities. However, the opportunity for Arrowhead and Takeda to co-develop and co-commercialize ARO-AAT in the U.S. provided an alternative to building and going alone. The opportunity for Arrowhead to profit share of 50-50 in the U.S. and receive a healthy 20% to 25% royalty outside of the U.S. made this decision an easy one. Being able to leverage Takeda's resources allows us to accomplish all 3 priorities to a greater degree than we would have independently. We are excited to collaborate with Takeda and leverage the deep expertise they have built within the clinical development, regulatory and commercialization landscape in both alpha-1 antitrypsin deficiency and gastrointestinal diseases. We anticipate Takeda's global clinical development and regulatory expertise may also help facilitate expedited registration for ARO-AAT in the U.S. and abroad. Takeda's Global Medical Affairs organization is well positioned to provide critical disease state education around the severe unmet need of AATD-associated liver disease. As with other rare diseases without approved therapies, alpha-1 liver disease is often undiagnosed or misdiagnosed. Takeda's proven ability to educate physicians and its long-standing relationships make them very effective at this critical function. Due to the robust rare disease portfolio and years of supporting the Alpha-1 community, Takeda also brings significant experience working with payers and stakeholders in order to navigate the orphan drug pricing landscape, drive product differentiation and pursue label expansion, ensuring optimal patient access globally. Arrowhead will be able to leverage Takeda's global footprint, strong relationships and promotional reach in the U.S. and outside of the U.S. to support rapid and competitive commercialization. If approved, ARO-AAT will join Takeda's global commercially available products, including GLASSIA, Aralast and ENTYVIO and their growing GI pipeline. So clearly, Takeda is invested and committed to these areas and has a proven track record of success. With that overview, I'd now like to turn the call over to Dr. Asit Parikh, Takeda's Head of Gastroenterology Therapeutic Area unit. Dr. Parikh?

Thank you, Jim, and the Arrowhead team for having me on the call to represent Takeda. We are really excited about the ARO-AAT program, and we're thrilled to sign this agreement to co-develop and co-commercialize ARO-AAT with Arrowhead. What drew us to Arrowhead and the ARO-AAT program were primarily 3 things: one, patients suffering from alpha-1 antitrypsin deficiency associated liver disease, or AATLD, a devastating genetic condition have no approved therapies for their progressive liver disease. Two, our deep expertise developing and launching GI therapies, which includes the chronic liver disease space. Moreover, we also have world-class expertise in AAT-related plasma-derived therapies. And three, the impressive data generated for ARO-AAT clearly demonstrate that it reduces the production of mutant Z-AAT protein in the liver, which strongly supports its potential to treat the underlying cause of AATLD. To expand a bit on my 3 points, this collaboration reinforces Takeda's commitment to the Alpha-1 community as it complements our expertise, discovering and developing groundbreaking therapies like GLASSIA and Aralast, which are indicated for chronic augmentation therapy in adults with clinically evident emphysema due to alpha-1 antitrypsin deficiency. Liver disease is a rising area of strategic importance for Takeda. We're currently focused on the development of therapeutics for late-stage liver fibrosis, including cell transplantation, complications of end-stage liver diseases and select monogenic liver diseases. Arrowhead's platform is a powerful way to achieve gene knockdown in the liver. This collaboration is an excellent fit for us at Takeda as it takes us into a new therapeutic modality to achieve a strategic gain. We will work swiftly and with great purpose to build on Arrowhead's progress towards our shared goal of 1 day bringing ARO-AAT to patients. We greatly look forward to working with Arrowhead as a partner. I'll now turn the call back to Chris.

Thanks, Asit. We appreciate you being here today. To recap what we've all said today, we are very excited about this partnership. It fits with our strategic priorities, it provides significant capital immediately and potentially in the near to midterm, it allows us to retain substantial long-term economics for a product that we believe shows great promise to address a serious disease, and we believe it brings a partner to the table that is better positioned than any other company to support a global launch and ensure broad patient access. This is truly a win-win-win deal where both companies and the patients we serve all benefit. I would now like to turn the call over to your questions. Operator?

[Operator Instructions] Your first question comes from the line of Salveen Richter from Goldman Sachs.

This is [ Sonya ] on for Salveen. We were just wondering, what is your strategy with regard to global commercialization? And more broadly, what parts of the portfolio will you partner? And at what value inflection points?

Thanks very much for that question. So that's an important 1 that we think about a lot. Look, we've got this what I think of as an embarrassment of riches. We have a very large pipeline right now, and that will continue to grow. And so this is an important thought process for us. As it stands now, we see good leverage and good synergy by focusing our build-out of a commercial organization in cardiometabolic and in pulmonary. We just see good opportunities there. That doesn't mean that those are the last therapeutic areas that we're going to focus on, it certainly is not. We've got a large and growing pipeline. So I expect to get into other areas. But that's an area that we're thinking about -- those are areas we're thinking about right now, and that's kind of the framework that we're building on right now. And so we look at ARO-AAT as a very important new medicine. And so our priority there is to make sure we've got the right partner to commercialize that, and we certainly found that in Takeda. As we look at other candidates, we will use that same kind of criteria. Can we find a good partner that can probably commercialize this drug candidate. If we can, at the right economics, we'll do a deal. If we can't, then look, we're happy to build out larger commercial organizations. But right now, that's our thought.

And then just 1 more question. On the extra-hepatic programs, will you be looking to potentially partner those as well? Thanks for -- if you could just give us some clarity on that, that would be great.

As the pulmonary program is extra hepatic, certainly, we are interested in holding on to some extra-hepatic areas. Again, right now, we are -- the framework that we're working on is cardiometabolic and pulmonary. I do expect that to expand going forward, but that's a good place to start for all of us. Our ARO-APOC3 and ARO-ANG3 are, we think, important programs, differentiated programs. And similarly, with ARO-ENaC and our follow-on pulmonary programs are important and differentiated, I think. So those are our initial focus areas. And again, I assume that's going to expand as we continue to grow our pipeline.

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

Congrats on this deal, it's very interesting. I guess, maybe a couple for me. One, was it -- kind of the why now, is it that early data kind of got to Takeda's attention? And how competitive was the process? And then just also lastly, just can you talk a little bit more about what exactly we should expect on the AASLD, your confidence around potential histology if we've seen changes in the enzyme and polymer this early?

Sure. Yes. So I don't want to speak to the process. But I'll say this. This was an important asset -- is an important asset. And so we took finding the right partner very seriously. And frankly, this was -- a no decision was also a fine outcome. If we didn't find the right partner, if we didn't find the right economics, we were happy to continue to develop the program and potentially commercialize it ourselves. But Takeda was clearly -- is clearly the right partner here with their experience in enzyme replacement, with their experience in GI, it just made great sense. And not only from an expertise standpoint, but also from a cost standpoint. They've got existing sales channels that will work well with ARO-AAT. And so this was a no-brainer for us. Thanks very much.

And then AASLD?

Sure. So AASLD, I can't expand too much on that. We top lined some of the data. I don't want to talk about any more of the data that we have not disclosed yet, but we expect a fuller data set from those 4 patients in the 2002 study.

Okay. So we should get some sort of histology or biopsy data there?

Sure. Yes, the biopsy data from the 2002. Of course, there will be no biopsy data from the SEQUOIA study, which is still blinded. But yes, you'll get more histology data than we disclosed at the -- as the -- when we top lined the data from those 4 patients, yes.

Your next question comes from the line of Maurice Raycroft from Jefferies.

Congrats on the update. Just wondering if you can talk more about how the pivotal trial could be streamlined or accelerated? And can you clarify if an update on that will be disclosed at AASLD?

So that's a great -- it's a really important question, Maurice. Thanks for it. We can't give you too much color on that yet because it's going to be the result of discussions with the FDA and other regulators. We haven't -- to be honest, we haven't even begun those discussions yet. We certainly have begun preparing for those discussions and preparing documents and the like. And so I'd hate to get out in front of those discussions. We will not have additional information on that at AASLD. AASLD will just be a place where we can give a fuller -- we can have a fuller discussion of the data from those 4 patients in 2002. So look, I expect over the next -- certainly over the next year, we'll have much better clarity on how we might be able to streamline and accelerate the development path. But at this point, it's still a bit unclear until we speak with the FDA.

Got it. And for 6-month biopsy, the top line looks better than expected, and we'll see more at AASLD. But just wondering if you can talk more about consistency of what you're seeing across the 4 patients and how much the consistency played into Takeda's decision to partner?

Yes. It's a great question. So I can't speak to what turns Takeda on. But I can tell you that that you'll see those ranges at AASLD. And I can tell you that we didn't -- it wasn't as though we saw a couple of good responders and then nonresponders. We saw reasonably consistent responses, and that wasn't a surprise to us. RNAi is a reasonably consistent modality, and we've seen in our other programs that generally works across all patients if it's going to work. So we're happy with that. Now it's time to see this in more than 4 patients, and we expect to see that as we continue the 2002 study and eventually, as SEQUOIA reads out.

Got it. And last quick question. During your prepared remarks, you mentioned how the deal with Takeda could expand the population of addressable patients. Can you provide more specifics on the vision there?

Yes. So let me answer that, and then I will defer to Asit because I don't want to speak for them. The way we see it is that I think that we are -- we're doing a pretty good job focusing on those patients who do not -- who have liver disease, but not severe liver disease yet. I think there are important opportunities eventually in looking to see if this could help cirrhotics as well as in pediatrics. That's the way we see it. It's, of course, up to Takeda to potentially expand that. But that's our thinking right now. Asit?

Yes. No, absolutely. I think that when you look at cirrhotics, there is an opportunity there that's not currently sort of fully thought through it, and it's going to require some of the kinds of discussions that Chris mentioned to come up with the right plan and then and ultimately have those discussions with regulators. But given we signed the deal last night, we've got a lot of work cut out in front of us, and I just couldn't be more excited about where we're going. The only other piece I'd kind of mention here is when you think about where Takeda has gone in the last 5 years in gastroenterology, we've had focuses in gut inflammation, in motility, and we've done a lot of preclinical work in liver disease. So having a clinical asset with a genetic target or patient population in need and the kind of technology -- platform technology that Arrowhead has, it all just came together and made absolute sense for us. So back to you, Chris.

Thank you.

Your next question comes from the line of Luca Issi from RBC Capital.

Luca Issi from RBC. Congrats on the deal. Maybe a quick strategy question here, Chris. You mentioned that now you're focusing obviously on primarily cardiometabolic and pulmonary. Can you just talk about how this deal maybe changes your appetite for potentially running a cardiovascular outcome trial on your own, similar to what the medicine company has done?

Sure. Thanks for that question. Look, to be honest, this deal has not changed our appetite to do a CVOT as necessary. We've always been okay with that. To the extent that either of those drugs, ARO-APOC3 or ARO-ANG3, to the extent that either of those -- the data coming from those trials look like they would support a CVOT, we're going to go. I see a lot of opportunity in, frankly, either of those to address a large population. Right now, what we're thinking about is that ARO-ANG3 is a broader population, a drug where we can imagine doing a CVOT. ARO-APOC3, at least right now, we're thinking as a bit narrower, although not orphan, but just a bit narrower, say, patients with triglycerides above 500 that we don't believe would require a CVOT but look, we're happy to have those discussions with the FDA and to see if that might. I think those -- both those assets are too valuable to not consider doing CVOT. And so if we're going to hold on to those, we need to recognize that, that may be a path forward, and we need to accept it, and we certainly do that.

Terrific. And maybe a quick question for Takeda here, just years of the -- your take on the competitive landscape here. And why do you decide to actually sign a deal ahead of seeing the Vertex data at the end of the year or early next year?

Well, I think that -- obviously, you always have to think about this when you get into a new area. And what specifically struck us here is that this is a first-in-class product and the platform with RNAi is, as Chris mentioned, exquisitely targeted. So you really can limit off-target effects. I think there's a lot that remains to be proven in terms of the competition that I think has already partly been derisked through the platform itself. As you know, there's other drugs using this general technology that are approved out there and validating sort of this general biological strategy. I think Arrowhead's got a robust pipeline. And so all that gave us confidence. I actually believe that this is going to be the first drug out there for patients with this disease. And I actually think it's going to be the strongest drug out there based on what we know so far.

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

Great. Congrats on the transaction, another really good alliance here in terms of monetizing the discoveries. Maybe you can give us a little bit of an update in terms of how this cash position really changes Arrowhead going forward in terms of the ability. You talk about the productivity coming out of the engine. But what does this really do in terms of enabling you to take some of the other programs further and/or retain fuller assets on -- fuller economics on some of the other assets.

Thanks very much, Ted. That's a good question. Look, we -- what we said when we did the HPV deal with Janssen was that it allowed us to think of our company as a broader pharmaceutical company and think longer-term about our current candidates as well as future candidates, and extracting more full value out of those by taking those all the way to commercialization. This just underlines that. This was a transition that we made a couple of years ago that was catalyzed by the Janssen deal. And I think this just puts more -- to mix on metaphors, puts more fuel in that engine. You talk about this preclinical engine that we've got, and it's crazy. We have this amazing ability to push new and innovative candidates into the clinic. And as we've talked about in the past, everything that we're doing, we are the first RNAi player. And so these are not me-too products. These are innovative and, I think, important products. We're good at that. And so now we can think about taking those all the way to the patients. And that's where I think we can make a real impact on patient lives, and that's where we can, I think make real gains in value creation.

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

Congrats again on the update. Chris, Jim, great to gain visibility into how you're thinking about commercialization broadly for the portfolio. So just a quick follow-up on the -- how are you thinking about the governance structure between Arrowhead and Takeda, obviously, a very sensitive time for the program in terms of development, regulatory, some -- certain changes that might be needed for SEQUOIA. Could you just comment on what do you exactly mean by acceleration and the cost-effective path as we think about a few months ahead for you guys?

Sure. This is truly -- so let me answer and then let me give Asit a chance to answer as well. The way I view this is, look, this is truly a co-development and co-commercialization partnership. Having said that, if there will be a leader in various levels of this, I think we will continue to take the lead in that partnership through these Phase IIs, through the part a portion of SEQUOIA and through the Phase II -- the open-label Phase II study. Once this flips into the pivotal portion of SEQUOIA or whatever study might replace it, Takeda will take the lead. But we will still stay partners here, and we'll have a joint steering committee where we discuss these issues, and I expect us to find alignment. That's the basic structure. Asit?

Yes. Thanks, Chris. So we launched ENTYVIO on both sides of the Atlantic in 2014. And from that, we built a whole GI portfolio around that. We built that portfolio through partnerships, very much based around the same principle here that Chris mentioned. Well, discrete responsibilities at various stages, but also a strong spirit of understanding and collaboration. And if you look at it, actually, our -- almost our entire GI portfolio has been built and licensed at all different stages of development. We've advanced those together with partners in many cases. We've done option deals, mergers, acquisitions, et cetera. But I think that ultimately, when we work with partners, we ultimately believe that both partners need to be understood, both partners need to be heard and both partners need to have really the right sort of incentives in place for it to be win. If both partners -- a win-win. If both partners aren't winning, then it's not really the right deal structure. And so I'm thrilled here in how the last few days have gone leading up to this. It's been just an absolute pleasure to work with Arrowhead, and I'm confident that, that's going to continue as we move forward.

Great. And maybe, Asit, if I could ask you, a patient -- [ AAT ] patient-specific question. How do you think about, with your plasma therapies, the difference between the lung and liver phenotype? Again, biopsies, would that be a necessary requirement? Again, a lot to learn about managing liver disease for these patients. But just any color on that would be great as obviously, you think about addressing the disease in a very different way.

Sure. I mean a lot of questions in there. Let me unpack a little bit there. So we've got -- we have an approved therapy to treat emphysema associated with the deficiency syndrome, right? And so how the 2 tie together, well, we have extensive experience basically with this patient community. We have extensive experience with many of the providers who see these patients. And ultimately, I think that, that will translate to a lot of synergies between the products. Exactly where we go will depend a little bit on the data. I mean, I think that the interplay between lung disease, liver disease is complicated. And I think not all of the answers are out there yet. It's a mutant protein that forms in the liver. It's a deficiency of protein in the blood that can cause lung disease. And not every patient has -- in fact, most patients don't have both. Some have one, some have the others, some have some evidence of both. So there's a lot we still need to learn. But I think being in the space already with the kind of global footprint we have at Takeda gives us the really sort of inside track at solving some of these important issues in a way that's important for patients.

Awesome. And just a final question, maybe back for you, Chris. What are the regulatory updates, if you can share anything on APOC3 and ANGPTL3, like where you are with the dialogue with the agency. Just update on that? And I know you have the AHA data also coming up.

Yes. I don't have any updates on those right now. I expect that we will have some updates on that towards -- or by the end of the year, but I don't have any updates today.

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

This is Rick on the line for Mani. Congrats on the partnership. So first, just need some clarification around the structure of the profit sharing agreement. Does this include cost sharing for all of the clinical and commercial costs associated with the program moving forward from here? And if you anticipate any immediate changes in OpEx projections?

We have no new guidance on operating expenses. Let's see, how else do we deal with that. The cost sharing for development is not 50-50. I can tell you broadly, we are -- we will be -- Arrowhead will be continuing to lead the Phase II studies right now, and we will assume those costs once we get into the pivotal portions of studies of the current study or a different study that's pivotal, Takeda will operate that as well as assume those costs. And then the 50-50 profit sharing in the U.S., of course, includes costs and then royalties ex-U.S. of 20% to 25%, of course, are just on net sales.

All right. Got it. And I just had a follow-up question about the size of the population of AAT patients in the U.S. versus outside of the U.S. Could you maybe just comment on how you see the commercial opportunity split between both the U.S. and ex-U.S. geographies?

Sure. Asit, do you want to handle that first?

Yes. I mean I think that -- I won't get into specific epidemiology numbers. I think that there's a patient population that's sort of already defined. And then there's increasing awareness with the possibility of drug therapy will actually make it possible to identify additional patients who right now go relatively unrecognized until their disease progresses and they may decompensate from that go on to need liver transplant or succumb to complication. So it will take some time for that to sort of -- to understand the true epidemiology. But in terms of the numbers of patients in the U.S. and Europe, we generally consider them as roughly equivalent.

And let me add one thing to that. So historically, this was thought of as a lung disease. But as people stopped smoking, as people were more careful around environmental pollutants, people started to live long enough to then have the liver disease show up. And so we see this as a historically underdiagnosed and undiagnosed disease. There have been autopsy studies that have indicated that as well that people have died of -- with AAT and many of them have -- were found to have liver disease when they died. So a big -- an important challenge here, and one of the reasons that Takeda is the right partner, I think, is that this is going to involve an awful lot of education and an awful lot of energy towards properly diagnosing these patients. We think there's a lot of them out there who are -- who have undiagnosed liver disease. And we think we've got a drug that could potentially help those people. And so an organization like Takeda with a global footprint and one that's already addressing this population is going to be a big help towards that.

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

Congrats on the deal. Just curious, once you get to the co-commercialization stage in the U.S., given that Takeda has the established infrastructure, Arrowhead, you don't have the experience. I want to ask Asit, typically in the past when you've had these partnerships, what would the role be of the Arrowhead partner? Are they there simply in an apprentice role to watch and learn? Or are there specific tasks that they assume responsibility for?

Asit, do you want to take that?

Apologies, I wasn't sure if that question was for Chris or for -- look, the way the deal is structured, it's a co-development, co-commercialization. And I think that in that -- in this full spirit of that, we take all partners very, very seriously. And over time, we'll certainly work together to establish what the right structure is. We've got some time to figure all of that out. But the responsibilities and really the obligations of each party are kind of clearly laid out, and we actually have tremendous confidence that Arrowhead is a company that's very serious about what they do and they plan things out, and they ultimately realize the benefit of that. I think that similarly, about 5, 6 years ago, we were in a position ourselves where we were -- we had a lead asset, it was a new asset, and we had never commercialized in that space, and we were told well, unless we can partner, we can never do it. That ultimately proved to not be true. We now have a footprint in 75 countries with that product, and that's part of the reason that I think we're an appealing partner here for an Arrowhead. So I think that I wouldn't underestimate what Arrowhead can do as a partner, but we have great respect for what they can do. I also think at the same time that we have proven capability here and that ultimately, this will make the partnership a win-win.

Your next question comes from the line of Madhu Kumar from Baird.

First, I want to say hi to Asit who I know from the JAX Lab days a long, long time ago. But thinking about the acceleration for AAT potentially or streamlining of it, like how will be the way to think about it in terms of endpoints, in terms of time of assessment, in terms of methodologies? Like what are the kind of features you think where there could be streamlining or acceleration based on what you've seen so far from the open label?

Yes. Thanks very much, Madhu. Look, there are a lot of levers here. And again, I don't want to get too far over skies until we start to have the discussions with the FDA, but let's talk through some of these levers. So what we learned in the first look at this -- at the open-label study is that we are seeing more dramatic changes more rapidly than we expected. So one area that we could think about is decreasing the length of a pivotal study. We were initially thinking of drug exposure for 2 years, at least 2 years. And it appears that, that may not be required. So that's an important one. Second, let's look a consistency of response. This was powered with the idea of 120 patients. This was powered in such a way that we expected some lack of consistency, if you will, or some noisiness in the data. We'll see where that goes. It could be that we could decrease the size of the study. We'll see. Third, endpoints. We saw such dramatic effects across a number of different parameters in the open-label study that it could be that there are other endpoints that might be informative and approvable. We don't know that. We have to have those discussions. But these are some of the levers that we can pull, and these are some of the areas that we will discuss when we have those discussions with the FDA and other regulators.

Okay. And actually, along those same lines, so the open-label extension as a set of doses, and you can correct me on this if I'm wrong. On SEQUOIA, the kind of Phase II arm was about dose selection. Like is there any way that the open-label extension could kind of make you go back, I mean, do we need to do dose selection portion? Or were the regulators in SEQUOIA, at least the alignment you received at the beginning, really pushing that you wanted to have that dose selection portion? So you didn't have any give on like we see the open-label extension that this dose seems to do what we need to do. We could maybe truncate SEQUOIA's Phase II portion and just say we're going to go with this dose into a Phase III.

Well, so I don't know the answer to that. I'm sorry, but I just don't know the answer to that. But I can tell you that these data will help to inform our dose selection. They will certainly be helpful as we look at the data from -- or as the data are assessed in the part A of the SEQUOIA study. I don't see truncating the part A portion. Let's dose those patients. Let's finish that portion and see where we are. I think the greater likelihood is that if we do -- if we can streamline and accelerate this process, it is more on the pivotal portion rather than on the sort of Phase II portion, if you will.

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

I have a strategic question, and then I have some follow-up questions on Alpha-1. So on the strategic side, when you think about it thematically, we have the partnerships now in rare disease and also in larger indications in HPV and cardiovascular disease. So I'm wondering what areas or platforms or part of your platform would Arrowhead keep internally versus partnering going forward. And then I have a few on Alpha-1.

Sure. So look, so we've never viewed ourselves. It is not uncommon for companies our size to call themselves as a rare disease company because there's a -- there's lower hurdles, if you will, to create a commercial organization to serve that. We've never thought of ourselves as only an orphan company. Clearly, with the fact that we've gone into these cardiometabolic areas, we've gone into to hepatitis B., we have really followed our science the whole way. We have looked at disease areas that we can address with RNAi. We've looked at the disease areas within cell types that we can address. And as you know, that's an expanding list as we get into new cell types. And our thinking is we need to be where diseases can be treated. Some of those will be rare diseases and some will be mass market diseases. We are not afraid of getting into large markets, as evidenced by ARO-ANG3 and ARO-APOC3. Those are big markets, and I think that we can create a lot of value there. But it also -- on the other side, it doesn't mean that we'll shy away from orphan indications. Look, I think we've got an awful lot of value to add and help the patients in cystic fibrosis. We talked about pulmonary and cardiometabolic. You look at ARO-ENaC, and we're very excited about that program. We think it's a good validated target. We think there's good reason to believe that, that could be a big help for CF patients, and that is a small market. So we view this more broadly. I think that you fast forward some number of years, we're going to be in some rare diseases as well as some larger diseases.

That's helpful. And then regarding Alpha-1, can you tell us, if based on the initial data readout in the Phase II open-label trial with the biopsy data, if you've seen an increased level of interest and enrollment in your studies among the Alpha-1 community? And then secondly, to what extent, if any, has the resurgence in the coronavirus impacted enrollment? And then regarding Takeda, can you discuss more specifically what their market share is in the U.S. and globally in Alpha-1 and what markets -- in which markets are they strongest?

Sure. So a few questions here. So I will defer to Asit on their market share, he can address that. With respect to interest, we've seen -- and I don't think it's an overstatement. We've seen an outpouring of interest and excitement from the Alpha-1 community and from our investigators resulting from the open label data. It was better than all of us expected. And I think that there are those investigators who have been treating patients with liver disease for some time and have had nothing to give them. And I think now they see light at the end of the tunnel. They see something that really can help these patients and they are very excited about that. Again, I don't think that's an overstatement. And so yes, I think that, that is going to help us continue to enroll future studies. With respect to coronavirus, look, that has affected us. We had, I believe, an 8-week pause on new enrollment and screening. That pause is over, and we continue to open additional sites. But there's no doubt that this world environment has affected our ability to enroll this. We are, as we speak, enrolling new patients, we are screening new patients. And so we continue to move forward. But in a non-coronavirus world, would we be moving a bit faster? I think, sure, we would be moving faster. Asit, do you want to address their market share?

Yes. I mean I'm going to basically just -- I'm going to have to defer a little bit on the fact that I am an R&D head for gastroenterology and the products that I guess, the question is about are run by our plasma business. We have a big global plasma business. And so I actually couldn't even tell you since I don't know exactly what the shares are here and there. But I think what's more important here right now is how many patients we can treat with liver disease. I mean, clearly, I've seen some of these patients myself. I'm still a practicing physician in Massachusetts. And I think that the need here is a really important need. This is a really targeted therapy and I think we're really embarking on a great partnership here. So I'm just delighted to be able to do that. I think ultimately, this product is going to be successful and have a home, and it will just play out over the next couple of years.

That's great. And if I could, just 1 last follow-up. So it sounds like just given the unmet need and given the global reach of Takeda that we could see a relatively quicker uptake. Am I understanding that correctly or no? Would there be some more heavy lifting here where the launch trajectory can maybe take longer?

Well, so that was one of the big benefits to us as we looked at -- as we ask the question to partner or not partner, even before we got to who is the right partner, if we had -- if we could find the right partner, that's attractive to enable us to launch quickly and smoothly. And boy, we are absolutely confident that Takeda will be able to do that, given their global footprint, given their experience in the space, given their ability to start to educate physicians, they are well positioned to ensure a good smooth launch. So that's our expectation, and we're really excited to have them as a partner to do that.

There are no further questions at this time. Mr. Chris Anzalone, you may continue.

Thank you all for joining us today. Thank you, Takeda for the partnership. We look forward to working with the company going forward. Thank you to Asit for joining us today. We look forward to talking to all of you soon.

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