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

Good afternoon, everyone. I'm Salveen Richter, a biotechnology analyst at Goldman Sachs. I'm pleased to have with us Arrowhead Therapeutics with Chris Anzalone, CEO.

With that, Chris, thanks for joining us. And maybe a question here on your overall portfolio. You've got First data emerging and extrahepatic tissues. can you just help us understand as you look to go outside the liver, why you chose lung and solid tumors as your first target and where you're going on the Ford there?

Sure. Thanks very much. And thanks for having us. It's really a pleasure to be here, and good afternoon. So look lung wasn't, for us, was a bit of a no-brainer. It's a target-rich environment. There is a number of well-validated targets to go after a number of disease areas to go after, and there was nobody there. And so it was clearly a place we wanted to go. We don't know if it could go there in the near-term because it's not easy, but it made a lot of sense. And as you know, our model is to get into a new cell type and try to blow out the number of well-validated targets as quickly as we can. The rationale here is that science is a great thing, and we won't be alone forever in a cell type. And so we'd like to see if we can get into these well-validated targets very quickly. And so therefore, competitors have to make the decision about whether or not they want to be several years behind, a good target or go after a different target. So lung made a lot of sense. Similarly, solid tumor made some sense for that reason. Oncology is hard, but there are a number of good targets to go after. Also, tumors are hungry, and so there was some natural flow, if you will, into tumors, we reasoned. And frankly, actually, we've been working on solid tumors now for about a decade. And we always accepted that our work there was important for 2 reasons. One, because we thought oncology was a place that RNAi could play a role, but also because that was really a test kitchen for us, where we started to learn about how to optimize these extra hepatic delivery and the like. And so anyway, those are sort of broad reasons why to optimize these those were our initial 2, 4 days outside the liver.

Perfect. And then just on your partnership strategies here, you have a partnership with Takeda and AAT in Amgen with Amgen and Lp(a). And J&J in HBV and plan to keep cardiometabolic acids. So I guess, really, my question is, how do you decide what you're going to keep going forward versus partner out as you look to build leverage with the platform?

It's a good question. So it's a dynamic process, right? My answer actually, last year was a good example. Early in the summer, we were considering partnering 1 of the 2 cardiometabolic assets and then as we continue to move in the clinic there, those just looked like assets we should hold on to and build a commercial infrastructure around and then partner AAT. The sort of the broad cloud of considerations are these. We need to first view business development as a means to an end, right? The way that we think, we can build a $ 20 billion or a $50 billion or more $1 billion company, the fastest is by commercializing our own drugs. And so we are looking for business development to provide capital for us to do that. And also to take some pressure off our bandwidth. We're really good at developing early clinical candidates very quickly and pushing them into the clinic. And so we -- I don't expect anytime soon to have a problem with the size of our portfolio. Our challenge is going to be how we properly prune that. And so we need to be disciplined and not partner too much, if you will, right, because so much value, we believe, can be created by holding on to our own drugs. And so we're looking for drugs that will -- that we can commercialize together. We're looking for synergy and the like where for instance, cardiometabolic, we can build a cardiometabolic commercial infrastructure to sell at least those 2 drugs and maybe additional ones. Similarly, if pulmonary works out, and we are cautiously optimistic that, that really will be a franchise for us. There are 16-or-so thousand pulmonologists in the United States. We have good line of sight on at least half a dozen potential pulmonary drugs. We like that model of filling the bag, if you will, with multiple drugs for our various sales reps.

Perfect. So just maybe focusing on the portfolio here. In -- I guess, this like very soon this quarter, we're going to see data from ARO-ENaC and in healthy volunteers of cystic fibrosis patients. And you've previously mentioned about a 50% reduction would be meaningful. How should we think about the functional benefit at these levels of production?

Yes. So go ahead.

I guess I was just wondering what you thought about some of the competitor data that we saw with Ionis and how to think about the read-through here?

Right. So it's hard to say what clinical manifestations will be associated with various knockdown levels. The reason that we believe the 50% knockdown is a good bogey for us is if you look at the genetic data, those heterozygotes, essentially heterozygote ENaC knockouts, who are also cystic fibrosis patients, don't seem to have a lung disease until later in life and even then it's rather minor. So that says to us that if you can decrease expression to 50% or so of wild type, there is a clinical benefit. So that's why we're sort of focused on that. And I think that if we can achieve that, it suggests 2 things. One, we are on the Board for a CF drug. And two, we are on the Board for broader pulmonary franchise. As I mentioned, that's -- I think that's where the longer-term value here is positive data in the CF program that it would suggest to us that we really have a way of knocking down, filling the blank gene product in pulmonary epithelial cells. As I've said in the past, look, there's a number of disease areas to go after, including asthma, COPD, IPF and a number of gene targets within each of those, and we've got active programs in all of those right now. And so we just need, we're hopeful that we can -- that we'll have evidence that we are getting -- that we are achieving some kind of knockdown. So that's broadly or qualitatively speaking, I suppose. If you dig a bit more into the numbers, we've seen really good data in our ENaC program in various animal models from rodents to nonhuman primates to sheep. Sheep are a well-established model for mucociliary clearance, and we've seen really good data there, where we've seen as much as 70 or so percent knockdown in sheep lungs, and that was associated with around a doubling of mucociliary clearance. We believe that's how this Air is going to help CF patients. And this is a tortured connection. But if you then look at some of the early vertex data, where they would see a doubling of mucociliary clearance that feels like it's associated with maybe a 10-or-so percent improvement in FEV1. So again, I'm going from -- I'm comparing different species and different drugs, but that gives us some kind of milepost that we are shooting for. Now I don't think we have to -- for the ENaC drug for ARO-ENaC. I don't think we have to see a 10% improvement in FEV1 to have a drug rather, we're going after those patients who don't really have therapeutic options right now. And so I think if we can achieve as much as a 5% improvement in FEV1 eventually, I think that we have a real drug there.

I guess what do you think are the risks to this not translating from the animal data to humans?

Let's see. So we've done everything that we can to derisk that from a preclinical standpoint. Again, we've done exhaustive work and in rodents, exhaustive work in NHPs and sheep. And we've seen just consistently good data. So that gives us some optimism. We've done work in CF mucus. People have asked, rightfully so, how do you know that your construct will get through mucus, much less CF mucus. And our KOLs believe that given the size in charge of our molecule, we should get through mucus no problem, and they believe that for CF mucus. We've done in vitro analysis, and it does appear that we can get through CF mucus. And so we've done everything we can. And now we've got to do the experiment in humans. The good news is, so far, we've been very well tolerated. We've gone all the way through the highest dose in healthy volunteers. We haven't seen any concerning safety signals. And so that's a good sign. And now we just need to see if we see knockdown in the Bronchial Brushing and Bronchi lavage in healthy volunteers, I think we should have that data by the end of this month. And so we're -- we're crossing the fingers, and we're looking forward to that. And then we'll also look at a small number of CF patients. I don't think that yet will be interpretable, to be honest. It's all blinded, so we haven't seen anything yet. But we -- but I think that we will have some FEV1 data in the first cohort of patients. This is the lowest dose cohort. But it's only 4 patients on active drug to placebo. And as you know, FEV1 is a pretty noisy measure. And so I think it's probably -- we're probably looking for that only for safety. I think the -- what we're really focused on is knockdown level. If we can see, as I said, if we can see good knockdown in those bronchial brushings, in the bronchi lavage. It says to us that we have a franchise, and I think that's a substantial value creation of it, should that be positive.

And I guess on a similar vein, how are you thinking about the HIF2 program?

So HIF2 is, at least for the early data, I would even have a lower bar, I think. We're just looking to get on the Board, right? Cancer is difficult as our first time in solid tumors, we just want to see that we get knockdown. If we get knocked down great or on the Board and now let's move forward. Let's continue to dose escalate. We're only going to have a very small amount of data over the next month or so in the early cohorts. And so if we can see consistent knockdown, it says we have target engagement, and that's what we really need to see at this point. And then let's -- if a safety profile is good, let's continue to dose escalate and let's see where we can go. I think, ultimately, the value of HIF-2 alpha is analogous to the value that we see in ARO-ENaC, in that I believe that there is a good drive there. I believe that it's a well-validated target. And if we can show good knockdown that we've got to drop against metastatic renal cell carcinoma as well as potentially other tumor types. But also, it suggests to us that we could have a franchise. And that's a lot of long-term value. Our targeting strategy here is not intended to be specific to renal cell carcinoma, but rather to work across solid tumors. And so if we can knock down this 1 gene product in this 1 solid tumor. It says to us that we should be able to do the same for other ones. And cancer is target rich, and so we think there's a lot of can go after.

And then you nearly entered skeletal muscle disorders and nominated kind of your first program here going after FSHD. Maybe explain to us why this target is your initial one?

Sure. So the biology here is crystal clear. People have FSHD because they are continuing to express this gene product, DUX4, that the rest of us don't express after birth. And so it is clear that if we can reduce expression of that, we can alleviate the symptoms and potentially reverse some of the symptoms associated with FSHD. And so the biology was compelling. The gene target was compelling. The patient population is compelling. These patients, unfortunately, have no real therapeutic options. So anything that we could provide any relief we could provide would be welcome to them. And so that was attractive to us. And then finally, this is our first foray into skeletal muscle targeting, and I believe we will be specific, but I don't know how hyperspecific we can be. And so if we do get into other cell types, it's not going to harm anybody if we are reducing the expression of DUX4 and other cell types because there shouldn't be expression of DUX4. So all of that made sense to us. That's all the good news. The challenge here, however, is that there's no known circulating biomarker for this. And so we're going to have to do biopsies to look at gene silencing. We think we can do that. It's just not quite as straightforward as if there was a circulating biomarker to assess. We're really excited about the program. We're going to have preclinical data that's presented at the FSHD patient meeting later this month. I believe it's the 25th of June, but I could be wrong about that. And the data are good. We see good knockdown in all models. We see good changes in functional measures in animal models, and we are cautiously optimistic that will translate into humans. And again, this is a patient population that really needs something. And so we are really looking forward to bringing this to the patients who need it. And I believe we should be filing to begin these clinical studies by the very end of the summer.

Great. And then turning to AAT, we're going to see 18-month data for your program there. And help us understand how to think about histology changes in inflammatory biomarker changes over time, given what we've seen with polymer level reduction?

Sure. And just to be clear, so you'll be seeing at EASL 12-month and 6-month period biopsy. We will have 18-month period biopsy in a bit, but that -- but we don't have it yet. That's not yet presented. I'd tell you, that's been a really exciting program for us. It's been one we've been committed to for years now. And we've been working with KOLs for years. We are in dozens of sites around Europe and the United States. And I think that we are just well positioned, particularly now with our partner, Takeda, to bring an important medicine to these patients. So what we saw, just to recap what we saw in the fall was a surprise to us. We expected to see, after 6 months of treatment, we biopsy those patients, we expected to see a good decrease in the monomer protein, the individual AAT protein. And we saw that near complete suppression. That was expected and that was important news. What we did not expect was the substantial decrease in polymer as well. As you know, when this misfolded protein is produced, it polymerizes, and it forms these globules, it forms -- it gums up these hepatocytes. The liver makes 2 grams of AAT a day. And so you can imagine that this is potentially inflammatory. And we didn't know how long it took -- it was going to take to metabolize that polymer. It turns out, we were able to get that quickly. We saw deep decreases in polymer after only 6 months of therapy. That was pleasant for us. It was great news for us and for the patient population. We then recently looked at 12-month groups as well as look back at histology in the 6-month group. And in 12-month group, again, we saw good deep reductions of monomer, good reductions in polymer expected and exciting. But then we also look at fibrosis. And in the 6-month group, surprisingly, we saw a regression of fibrosis in 2 of 4 patients. In those 2 patients, by the way, were cirrhotic. We rescued them from cirrhosis. One was F4 and we made that person in F3 and the other 1 was F4 and became F2, shocking to us. I don't know that that's very common to see that sort of rapid decrease in fibrosis. And then in the 12-month group, we saw even better data. We saw 4 of 5 patients with a decrease in fibrosis. And so that all tells us that we are -- that: a, we have a real drug against a real attractable liver disease that has no therapy other than liver transplant. B, it tells us that our drug works much more rapidly than we expected. And so we're excited to go forward. We have submitted a breakthrough therapy designation to the FDA. And should we get that, we'll have start discussions with them. Even if we don't get it, we will have discussions this year about potentially approvable endpoints. But we are really excited about that program. And we believe the Takeda is the right partner to take that forward. Our economics are good. We've got 50-50 profit share in the United States. And so it doesn't feel like we gave much away there, to give us an entrenched partner with existing sales and marketing heft in those markets.

Good. And then on the cardiometabolic assets. You planned to initiate 2 Phase IIbs and a Phase III trial for APOC3. Can you help us -- I mean, I guess, on terms of trial design how much of a difference there is going to be versus what you did in Phase II here? But more importantly, the commercial opportunities as you look to this asset and even though your other cardiometabolic asset, how do you think about kind of fitting in a paradigm where there are a bunch of liver knockdown models coming or 1 about to hopefully get approved? What's the strategy here?

Sure. So let's start with APOC3. So we just announced that we have begun dosing 1 of those Phase IIb studies. So we're excited about that program. The data in the Phase I/II were consistent and clear. We can reduce triglycerides in patients with severely elevated triglycerides by over 90%. And so that really moves the needle. We're talking about severe hypertriglyceridemia. So these are patients with trigs above 500. We can normalize those patients in a -- in very short order. And that's paradigm shifting. If you compare that to Vascepa, which is a good drug, Amarin did a great job with that drug. I believe that lower triglycerides, dependent on the patient population by 18% to 30 or so percent, which is important and helpful for those patients. But we're talking about something that is completely different. So we see a big opportunity there to help a lot of people. So then the question is, well, so how do we -- who do we help? Where do we position this. And our initial target market here is in FCS patients. It's a small -- it's an ultra-orphan to be sure, but these are patients with triglycerides in the thousands. And there's not a really good treatment for these patients right now. And we think that we could substantially change their lives. And so we'll be starting a Phase III program, a Phase III study this summer, I believe. I think we should start dosing that this summer. That's probably a year-long study. And I think we can get to market relatively quickly here to help those patients. And then to take a step down, we are doing a Phase IIb study right now in severe hypertriglyceridemics. These are patients with trigs above 500. We view that as a really interesting market segment because we think there's around 4 million of those. And as I said, I think that we could really -- I think we can normalize their triglycerides in pretty short order. And we think a pivotal study there is probably just a year-long study. The approval endpoint there, we believe is probably just lower in triglycerides. It's not a cardiovascular outcome trial. So it's one of those interesting dynamics where the regulatory pathway is quite clear, and we think relatively short, and it's a large patient population. And this drug just works. From our perspective, the Phase I/II data were quite clear and consistent. And so we just need to do these studies. And I think those are good markets for us. With ANG3, this is our mixed dyslipidemia drug and where we've seen consistent and good deep lowering of LDL and triglycerides, that we view as more of our broad market drug going after those 30 million to 40 million patients in the U.S. alone with elevated LDL and elevated triglycerides. There's not a good approach for those 2 parameters right now. We are the first RNAi player in an ANG3, the same thing with APOC3. We'll be starting our Phase IIb study shortly that will support a pivotal study that will likely have to be a cardiovascular outcome trial. But I think at the other end of that, we have a real drug that can help enough a lot of people.

Perfect. And then how are you thinking about how that reimbursement and payer landscape may play out over time, just given what we've seen already with cardiometabolic drugs?

And so we'll see where that goes. It's too early to opine too granularly on that. But our overarching philosophy on this is that we're in the business of making medicines that make a real impact on patients' lives, not just around the margins. Again, this -- I don't want to pick on Vascepa because then it's a good drug. Again, the comparison of ARO-APOC3 and Vascepa, a 90-plus percent reduction of triglycerides versus 18% to 30%. We're not just looking to be a little better than existing drugs. We're looking to do things that other drugs can't do. As far as I've been concerned, if we can create that value then the reimbursement is -- will be there for us. And so we'll be working with our commercial team and with payers and such as we approach the market, but that's our overarching feeling that we're in the business of making important drugs that do things that other drugs just can't do right now.

Chris, what are you most excited about in the pipeline outside of what we just discussed?

That's a hard question. We have so much going on from cardiometabolic programs to pulmonary programs to solid tumor programs to muscle programs to NASH, we didn't touch on NASH, but we're going to have data from our first NASH drug, ARO-HSD, which, by the way, is the first drug of any modality against that target. We'll have data at EASL by the end of this month there, and we expect good knockdown. There's a lot going on here. And I think that each one of these areas fits into our portfolio in a specific way. For instance, the cardiometabolic drugs, I think it gives us a good base value. There are clear patient populations there. We have drugs that we believe, at least so far, appear to do what they're intended to do. And the path and the regular pathways are clear. That gives us, again, a base value that to build on. We look at pulmonary. As I said, that's -- we're excited about the pulmonary space because it's -- the lung is a target-rich environment. We are the only RNAi player there for the foreseeable future, frankly and the animal data have been good. Should that translate well into humans, that is a huge franchise opportunity that we're excited about, and that gives us, I think, explosive growth creation possibilities. Same thing with muscle. We'll be in the clinic with muscle by the end of the summer. Same thing with solid tumors. If you look into NASH, this is a grindingly difficult problem. And we're going after this target HSD17 beta 13 which is a well-validated target that I think has some buzz around it because it appears to confer, at least in GWAS analysis because it appears to convert 30% to 50% protective effect on liver, not only for NASH, but also for alcohol-related liver disease. So that plays a role. So this is a wishy washy way of saying that all of these programs together fit in nicely, I think, to a company that's trying to become a $20 billion and then a $50 billion company, and I think they all played their role. We are looking forward to these near-term data readouts because I think that they will show continued incremental progress in hepatocyte-directed constructs. And important advances in these extra-hepatic opportunities.

For the NASH program, what is the clinical bar that you're trying to achieve there in order to move forward to pivotal.

So the bar -- the first part here is just consistent good knockdown. I think I'm optimistic that we'll show that because we're good at knocking down gene products in hepatocytes. Once we see that, what's great about HSD is, again, it's a well genetically, it's genetically well validated. The challenge is that there's not a known biomarker. And so we need to do biopsies to understand our knockdown profile. And so at this point, we're just looking to choose a dose for a Phase II. And so we'll see what the knockdown looks like in various doses and then we'll go into a Phase II study to understand the durability of the drug. We expect it to be quite durable. If you look at ARO-AAT or ARO-APOC3 or ANG3 or for our collaboration with Amgen against Lp(a), we expect quarterly or every 6-month dosing. We'll learn that in Phase II. And then we'll also in the Phase II, start to look at potential changes in histologic parameters. We're not looking at that right now. It's too early to take a look at that. We're just looking to choose a dose.

Okay. And then for your program with J&J and HPV, your contracts designed here to silence the full virus transcriptome. Can you remind us on the molecular structure here and how maybe it's differentiated from the other RNAis and the combinatorial approach you see on the Ford?

Sure. So we've been in hepatitis B longer than anybody else in the area. We've been in there for many years now across now, what, I guess, 3 different clinical candidates. And I think that we were -- I think that we have been really at the forefront of pushing the biology of hepatitis B. And I'm really proud of the work that we've done here. What we discovered was that one of the key viral antigens, so-called s antigen and service antigen is produced by integrated DNA, to a large extent, in some patient population. That wasn't really known until our studies several years ago. And so what's -- I think what's important about our approach is that not only are we looking to knockdown s antigen, we're looking to knockdown s antigen from the virus as well as from integrated DNA. I think we're good at that. But we're also looking to knockdown other viral engines. As you mentioned, we're looking to knockdown the entire transcriptome. And there's this 1 little funny antigen called with the X antigen, that's small. That we knockdown, I don't know that our competitors do, and that may be important for the life cycle of the virus. I think that we're ahead of competitors here. I think we've got the right partner. J&J has done a phenomenal job doing a number of studies, trying to find the right combination approach. I think they probably treated, I don't know, many hundreds of patients so far. And we're looking forward to seeing data. I don't know when those initial studies will be completed. But as I understand it, I think there are 4 clinical studies right now, and I expect that to grow as they combine it with other modalities.

Maybe just a final question here. You are developing COVID-19 therapy and once against other coronaviruses, where do those stand right now?

Yes. So you may have picked up on -- and your viewers may have picked up on a trend here. We look to develop franchises, right, pulmonary franchise, hepatic franchise, solid tumor franchise, muscle franchise for coronaviruses. I view that broadly as pulmonary viruses. We see a big opportunity to treat a variety of pulmonary virus because I believe that we can get into pulmonary epithelial cells. So for coronavirus, we are looking to develop therapies that could work across at least SARS type coronaviruses. And so not just for the current one, but for future ones. I think what we've learned is that every 7 or so years, there may be a new SARS outbreak of some type. I certainly hope that the next 1 or 2 or 3 are not going to be severe as this one. But I think this is with us going forward. And so we're looking to develop something that can treat the current coronavirus, but future is ours as well as we're looking for a proof-of-concept that we can get into other respiratory viruses, such as influenza, Para influenza, RSB. And we're just starting that. But the initial data so far on drug virus has been quite positive. We are on the Board. We are seeing good knockdown of these antigens. We're seeing good knockdown of viral load. And I think we are on -- I think we're on the right track. It's still early days, but we are happy about what we're seeing so far.

Perfect. Well, with that, thank you so much, Chris. Really appreciate your time today. Looking forward to the data coming shortly.

It's been a pleasure. Thanks very much.

Thank you.