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

Hello, and welcome to the first day of the 42nd Annual JPMorgan Healthcare Conference. My name is Arvind Ramaiah. I'm an associate with the New York City Healthcare Investment Banking Group at JPMorgan. And it is my absolute pleasure today to introduce Chris Anzalone, President and CEO of Arrowhead Pharmaceuticals.

And so it begins. Thanks very much for having us. It's really a great pleasure to be here. So I was just talking earlier, generally, these -- generally, I do fireside chats and these sorts of things, and I find that those are helpful. And so I've got only 12 or 13 slides, and I'll run through them hopefully rather quickly so we can get to questions and answers. I think it's a more productive way to proceed. All right. This will be the first of 1,000 statements that you'll see. Please refer to our filings before making an investment decision. Okay. So we are -- as of Friday, which we closed at $35.60 giving us a market capital of around $4.5 billion. We've got around 123 million shares outstanding. That includes a financing that we completed on Friday. As of 9/30/23, we reported around $400 million of cash and investments. We added to that again with this financing with gross proceeds of around $450 million. Okay. We are an RNAi company with broad applications. This picture is who we are. We have this modular system that is structurally very simple. It is composed of a -- do I have a -- doesn't matter. I don't have a pointer. It's composed of an RNAi trigger. This is the RNA molecule that initiates the knockdown process as well as stabilization chemistries. This is conjugated to a targeting ligand the linker chemistries, and we use PK enhancers as necessary. Importantly, we have a library of targeting ligands. We have a library of linker chemistries. We have a library of stabilization chemistries as well as a library of PK enhancers, that allows us to be modular, that allows us to create a number of permutations here to go where disease is to bring this RNAi therapeutics to organs outside the liver. So this is an important component for us. It allows -- this modularity allows us to get outside the liver. As I mentioned, historically, for years, RNAi has been focused on the liver and focused on knocking down gene products in the liver. And that's been extraordinarily powerful. And there's a number of disease states that we can go after that way. Although we recognized 12 or 15 years ago that in order to really extract value from this platform or in order to really help a number of patients we need to go where disease is, and that means getting outside the liver. So we spent years getting there. And so now we have the ability to do that across a number of different cell types. And so this modularity allows us a continuity and a confidence once we get into a new cell type. Cells don't care what the sequence of the RNAi trigger is. Once you validate that you can get into a certain cell type in a well-tolerated manner, you can swap out the RNAi sequence and knock down virtually any gene you want. It's a very powerful thing. It also gives you confidence that, again, once you have validation for a single candidate you should have validation for future candidates relatively quickly. This allows us as well to move very rapidly from idea to clinic. Historically, at least in the liver, we've been able to go from idea to the clinic in around 12 to 18 months. It's very powerful. Okay. So this is our pipeline. It is quite large. As you can see, we have 16 clinical programs right now, 12 of them are wholly owned, 4 our partners. We've got partnerships with Amgen, GSK and Takeda. These are in a number of areas, including cardiometabolic, pulmonary, neuromuscular as well as other liver diseases. Our challenge -- or your challenge is to know where to look here. It's a very large pipeline, as you can see. And so the way we look at this is as a series of verticals. I think this is an easier way to look at our pipeline. Cardiometabolic vertical is one that we are making a play in. This is an area where we will build out commercial infrastructure where we will sell our own drugs. What we have in cardiometabolic right now is a few drugs. One is plozasiran. The target here is APOC3 or apolipoprotein type C-III. We will be entering the market here in a staged approach. First, against a small indication, FCS, familial chylomicronemia syndrome. We will complete a pivotal Phase III, we believe, in the second quarter and we believe that we can file an NDA by the end of this year. We'll follow that up with a broader market of SHTG or severe hypertriglyceridemia. We'll start a Phase III program there in the first quarter or so of this year. We also have zodasiran. The target here is angiopoietin protein 3. We will be addressing this -- we'll be commercializing this drug in a similar fashion as we are with plozasiran. First with HoFH or homozygous familial hypercholesterolemia. We will start a Phase III program there in the first quarter and then potentially move into the broader ASCVD market to do a cardiovascular outcomes trial. We believe we'll start that in the second quarter. We're still, frankly, looking at both plozasiran and zodasiran for that broader market. We are leaning right now towards zodasiran, but we'll make that final decision this quarter. And then going forward, we also have the ability to target adipose tissue. The largest metabolic organ -- endocrine organ rather in the body. There are a number of important metabolic targets there. We've seen good silencing in animal models, greater than 90% the last over 6 months of duration after a single dose. We view this as a very important component to our cardiometabolic franchise. We believe we'll be in the clinic in 2024 with our first candidate there. Next, a vertical that we believe we will develop ourselves is pulmonary. There are about 16,000 pulmonologists in the United States. We see this as a target-rich environment. We believe we can get to market with a number of different drugs addressing a relatively small number of physicians. We have 3 programs right now in the clinic. First one is ARO-RAGE. We're developing that against asthma. We expect to start a Phase II in 2024. The next one is ARO-MMP7. That's against IPF. We expect to start a Phase II also in 2024. And the third is ARO-MUC5AC. We're developing that against COPD and asthma. Again, we believe we can start a Phase II study this year and we expect additional targets potentially this year. So these are 2 clear verticals that we are developing ourselves that we will commercialize ourselves. We have a number of partner programs. Olpasiran is one we developed that for Amgen. The target there is LP(a) against cardiovascular disease. They are in a Phase III cardiovascular outcomes trial right now. Fazirsiran, this is a drug that we developed against alpha-1 antitrypsin liver disease. That's partnered with Takeda. We've got 50-50 profit share in the U.S. We've got royalties to 25% ex-U.S. That is also in a Phase III study right now. GSK4532990. This is a drug that we developed against NASH. The target is HSD. GSK is prosecuting a Phase II study right now. And then finally, JNJ3989. This is hepatitis B drug that we developed initially with JNJ that's now with GSK, and they are in a Phase II study right now. So these are our currently partnered programs. We have targets that we can bring to partners, we believe. These are ARO-PNPLA3. This is a NASH drug. We have said publicly before that NASH is probably not a space that we should be playing in. PNPLA3 is a slightly different situation potentially because it's a genetically defined market. However, it is still probably something that is in better hands with large pharma with a number of NASH drugs. ARO-C3, this is against complement diseases. This also doesn't feel core to our business. ARO-DUX4 and ARO-DM1. These are from our muscle delivery platform. DUX4 is against FSHD, DM1 is against DM1. These are in Phase I studies right now, and we believe that these also could be partnerable. Our hair is not on fire, doesn't have to be partnered today, but we think over the near to midterm, these are good targets for partnering. And then potentially ARO-CFB, this is against Factor B, again, also as with C3 will be against complement-mediated diseases. And that leaves CNS. This is a burgeoning vertical for us, and we have yet to decide if this is a place that we are going to hold on to and develop internally. It's attractive. Look, it's target-rich. There are a number of grinding unmet medical needs that we can address the RNAi. We expect additional CTAs in 2024, and we are also developing systemic delivery. We expect more data to come out of that preclinical this year, and that could be in the clinic in 2025. So it's very exciting. We know we are -- we will wait to see if that's a vertical. We will also pursue ourselves or in partnership. Okay. So these are all part of this initiative that we call 20 in '25, where we expect to have 20 individual drugs in clinical studies or at market by the year 2025. So this is an expensive business. And we've got a large pipeline that requires capital. We are addressing those capital needs in a multipronged approach. First, equity. As I mentioned, we closed an equity deal on Friday with $450 million of gross proceeds. We are not serial issuers. The last time we raised money via an equity offering was 5 years ago. There are other opportunities in creative financing. So think here product or creative financing that involves bringing in capital to fund a certain drug candidates in return for capital royalties. This is something that's attractive to us, and we intend to execute something in this area over the next several months. Business development will always be a core to what we do. We have such an ability to bring a number of candidates into the clinic quickly that we will always have more drugs that we can partner than we can develop internally. We have brought in about $1 billion of partnering capital over the last 6 years, and we see additional opportunities for new deals in 2024 as well as our existing deals. We expect those to perform in terms of milestones, et cetera, over the next several years. And then ultimately, of course, commercial sales. We expect several launches over the next 5 years, and we also expect to receive royalties from partner launches over that time frame. Okay. So what this gives us, I think, is a different kind of biotech company. We have a broad value proposition that has a very interesting dynamic, I think. We are developing validated technology. I think that if you were to walk around this conference and talk to people about RNAi, I think that there is a consensus that it works, then it works almost all the time when the RNAi compounds are developed correctly. However, there is also a scarcity overlaid on top of that. There are really just 2 companies that have driven that innovation. Alnylam and us. So it's an interesting dynamic that I think we can profit from not only by developing our own drugs, but also by partnering. We are leaders in expanding the reach of RNAi. As I mentioned, we made the decision 12 or 15 years ago that in order to extract proper value from RNAi, we needed to get outside delivery and we've been doing that. We can now get into CNS, adipose, liver, muscle, pulmonary, and we'll continue to develop our ability to get into other cell types. And then we've got a large pipeline as we just talked about. We've got many opportunities to create value. I view 1 or 2 drug companies as bets not businesses. And we are a business. We have a relatively large portfolio of drug candidates that allows us an awful lot of opportunities to create value, but it also gives us some risk mitigation. It's not catastrophic if 1 or 2 of those don't perform well. Of course, it also gives us ample opportunities to bring in non-dilutive capital via partnering. Okay. So let's talk about a couple of these verticals. I'll talk about cardiometabolic and pulmonary to a short extent here, and then we can move on to questions, I believe. So within the cardiometabolic vertical, we'll start with plozasiran. This is our drug candidate against APOC3. As I mentioned, we are going to get into market via the staged approach where we start with a smaller FCS market and then expand into the larger SHTG market. So within FCS, the genetically defined FCS patients is a fairly small population. We think less than 1,000 people in the United States. However, when you think about that market more broadly as those patients with triglycerides above 880 and history of pancreatitis, it becomes reasonably large. We think between 70 in 100,000 individuals. And this is the way we have defined it in our Phase III program. So we think it is not necessarily an ultrarare population. Where we stand now is we expect the Phase III to be complete next quarter. We expect to file an NDA by the end of the year and then to launch next year. As we are commercializing this drug in that population, we will be developing the larger indication of SHTG or severe hypertriglyceridemia. We believe that population is substantially larger. We think there are 3 million to 4 million patients in the U.S. with triglycerides above 500, and about 1 million of those with triglycerides above 880 and there is not good therapeutic alternatives for these patients right now. It's an interesting opportunity, I think, because it's a fairly large market, but the regulatory pathway is clear. We will start a Phase III program in the first half of this year. We expect this to be a fairly short Phase III, a 1-year treatment Phase III trial. And the expected approval endpoint is simply lowering triglycerides. And we do that in spades. We'll talk about the data in a second, but this appears to work in essentially 100% of patients every time. So we believe plozasiran has blockbuster potential. So let's look at some data. This data -- these data come from our Phase II in patients with SHTG. What we see here is APOC3 dropping by about 80%. We also see triglycerides lowering by around 74%. This is important. So we are able to bring these patients with severe hypertriglyceridemia into the normal range of triglycerides for a lot of them. And for virtually all of them, we can bring their triglycerides lower than the 500 threshold that makes them susceptible to pancreatitis. And again, this appears to work in all patients essentially all the time. This drug just seems to work. Next, will be zodasiran. We also expect to commercialize this in a staged fashion to start with HoFH, a very small indication and then broaden out into ASCVD, both primary as well as potentially secondary prevention. So with HoFH, again, this is a small population, we think, around in 1,000 individuals. There is no good way to treat these individuals. For instance, PCSK9 inhibitors will not affect the true homozygotes. So where are we now? We expect a Phase III to launch in the first half of this year. We expect that to be a fairly straightforward 1-year Phase III program with approval endpoints of simply lowering LDL-C. Within this population, we see LDL reduction of around 48%. So we think that we can help an awful lot of patients, an awful lot of these 1,000 patients with this drug. As we develop that and as we commercialize that, we will be -- we expect to enter into a broader CVOT for the larger population of ASCVD. We think that population is probably in the tens of millions of patients. We expect to start a CVOT in the first half of this year, either with zodasiran or plozasiran. And so as with plozasiran, we think zodasiran has blockbuster potential. So does it work. Let's look at some of the data here. This is from a Phase II study that we presented at AHA in November of this -- of last year. We are seeing reductions in ANG3 of greater than 73% and we're seeing lowering of triglycerides in the 63-or-so percent range. We are also seeing LDL reductions in the 20-or-so percent range. Again, I mentioned that in the HoFH population, we see even better LDL lowering. But in the broader population, we see 20% or so lowering. We are seeing remnant cholesterol reductions of around 82%. And this actually is stunning. This revenue cholesterol story has been gaining steam over the last years -- last several years and really over the last 6 months, this is -- appears to be a substantial risk factor in cardiovascular disease. And there have not been very good ways to lower it substantially. And as shown here, we can lower it by greater than 80%. We can lower non-HDL by around 36%. And finally, ApoB by greater than 20%. This, to us, feels a bit like a pipeline within a drug. We believe that we are entering a golden age of treating cardiovascular disease, where for years, the only tool we had was to lower LDL cholesterol. We know, however, there are a number of other lipid parameters that increase the risk of cardiovascular disease. And now we can address a number of those with zodasiran but also with plozasiran. Okay. Let's talk briefly about the pulmonary vertical. ARO-RAGE, as I mentioned, is being developed for asthma. We expect the Phase II to start this year. We have seen -- we have completed chronic tox data and that allows us to move into Phase II. We are excited about that. We have seen really exciting data in normal healthy volunteers, where after 2 doses of 92 milligrams, we've seen a mean max reduction of range of 80% and a max reduction of around 90%. And after 2 doses of 184 milligrams, we've seen a mean max reduction of around 89% and a max reduction of 96%. This is truly stunning. There are no other really algo players within the pulmonary space. And this, I think, is -- we hope is indicative of the platform. We believe we'll have patient data later this year, but so far, the patient data have mapped pretty well on top of the normal healthy volunteer data. So we believe that this is doing what we intended to do, not only in health volunteers but also in patients. We're also developing ARO-MMP7, as I mentioned, against IPF. A Phase II is expected in 2024 as well. We have finished chronic tox studies here as with ARO-RAGE, this gives us clearance to move into Phase II. We expect to see patient knockdown data sometime this year. And then finally, ARO-MUC5AC. It's been developed for COPD and asthma. We expect a Phase II study also this year with ARO-MUC5AC. We have not started chronic tox studies yet, and we don't have patient data yet, but we do expect to have that this year. So given the ARO-RAGE knockdown data and given the chronic talks from both ARO-RAGE and ARO-MMP7, we have confidence that we have a platform. As I mentioned, what's really exciting about this approach is once we have validation in a certain cell type within a single drug candidate, we think that, that can read on to future candidates. And we believe that that's what we're seeing here in the pulmonary space, and that makes us excited about bringing additional candidates into the clinic. Okay. So we've got a number of expectations over the next 12 months. First, we will continue to strengthen our balance sheet. We expect to structure our product finance transaction over the next several months. We also see substantial business development opportunities throughout the year. Within cardiometabolic, plozasiran, we'll complete a Phase III study in FCS patients. We expect an NDA filing by the end of the year, and we expect to launch into 2025. We will also start Phase III studies in severe hypertriglyceridemia populations in the first half of this year. With zodasiran, we expect to initiate a Phase III study in HoFH in the first half of this year. We also expect to initiate a cardiovascular outcome trial with either zodasiran or plozasiran in the first half of this year. Within pulmonary, ARO-RAGE, we expect additional knockdown data from asthma patients over the next couple of months probably. We also are looking for FeNO reduction. So this is a marker for inflammation. We expect -- we have 2 cohorts where we are enrolling high FeNO patients. And so we expect to have some of those data probably around the middle of the year. We think that's very important to derisking the candidate against -- in the asthma market. We expect a Phase II initiation also probably in the second half of this year. Within ARO-MMP7 and ARO-MUC5AC, we expect initial data in patients this year, and we expect to start Phase II studies towards the end of this year. And then finally, with the platform and pipeline expansion, we expect initial data from our muscular pipeline. This is ARO-DUX4 and ARO-DM1. That's important, particularly if we're going to partner these at some point, having proof-of-concept data is going to be important. We believe we'll have C3 data from various patient cohorts towards the middle of this year. We expect to have a new or multiple new CNS candidates in the clinic this year. We expect more data in the CNS systemic delivery platform this year that will hopefully support initiation of a clinical study in 2025, and we expect the first adipose targeted candidate in the clinic this year, that again will be in the cardiometabolic vertical. So it is a busy 2024 that we see, and it's one that we're excited about. And so with that, we've got 15 or so minutes for Q&A. So thank you for listening.

And you can send questions through the portal. The iPad doesn't currently appear to be working. So we'll take questions in the room at first. For a couple of prepared questions. So you have a lot of programs in development. Just wanted to get a feel for what your plan was to finance them?

Right. So that's an important question. The good news about this large pipeline and about the ability to throw a number of candidates in the clinic quickly is that we have an awful lot of value that we can create in the near term. The bad news is that, that value costs. As we talked about, we have a multipronged approach to capital. We are -- we have -- as I mentioned, we raised about $450 million on Friday. We see business development as a cornerstone of our capital strategy going forward. We have a ton of ammunition there. As I mentioned, we have 12 wholly owned candidates, 4 of that are partnered. We expect to initiate 3 or maybe 4 new candidates in the clinic this year, gives us an awful lot of ammunition to do partnerships that will put some of these drugs in the hands of folks who can develop them when these candidates are not core to our business. And so that's going to be an important part of our financing really forever. And then finally, as I mentioned, we see structured or product finance opportunities in the near term, we think these are important to us. We aren't paying royalties on any of the candidates we have right now. And so we think we have room to pay some royalties to somebody in return for product finance. And of course, of the royalties we expect would be capped at some point. So what keeps us up at night is not our access to capital. We think that we have plenty of that over time.

Could you walk us through your near-term and midterm commercial plans?

Sure. So cardiometabolic is clearly where we will be starting our commercial process. With plozasiran, we really like this staged approach of starting with a relatively small population of FCS. And again, the definition of that is not only genetically defined FCS patients, but those patients with triglycerides above 880 in history of pancreatitis. And so this is, we think, between 70,000 and 100,000 patients. It is bite-sized for a newly commercial entity, and we have begun our planning for that launch already. We expect that launch to be in 2025. So over the next year or so, we expect to be in that market. We will expand that then into severe hypertriglyceridemia. As I mentioned, that's a really interesting opportunity. We think there are 3 million to 4 million of those patients. They don't have good alternatives right now. There is a clear regulatory pathway, and it's relatively short. We think that Phase III study is a year-long study. The approval endpoint is simply lowering triglycerides. We do that in spades. So that allows us to get in to this broader market with the same drug. Now our pricing will change, of course. We would price the FCS drug as the orphan than it is. And then we expect to lower the price once we have approval in the broader SHTG market. So we like that strategy. Similarly, for zodasiran, we have a similar strategy where we start with HoFH. We'll be starting this Phase III program in the first half of this year. We think also that should be a fairly straightforward, fairly short Phase III program that will be a year long, we think, where approval endpoint is simply lowering LDL-C. We do that in spades. It allows us to get into the market, start speaking with physicians, educating the market on what this drug can do. And while that's happening, we are prosecuting the cardiovascular outcomes trial, which will be long and expensive but ultimately, we believe, will enable us to get into a very large market and help an awful lot of patients by pulling on a number of lipid levers that have been heretofore impossible to pull on. So we're excited about that. And so we will start as a commercial entity this year to next year, and we think grow substantially over the next several years. Looking a bit further out, we see additional cardiometabolic drugs that will be in that vertical in part from our ability to address adipose tissue. We also see pulmonary as an important space. As I mentioned, there are 16,000 pulmonologists. We like that leverage, right? We like the idea of addressing only around 16,000 physicians in a target-rich environment. We think that we will have not just 2 or 3 drugs coming out of that vertical, but 8 or 9 drugs coming out of that vertical. That's, again, longer term, but we'll see where that goes. And ultimately, we'll see where CNS is. As I mentioned, that's early days, but it's a very attractive vertical. And so far, the preclinical data have been strong.

Any questions from the room, feel free to raise your hand. How do you see yourself building out your pulmonary vertical?

Sure. So look, here's what we realized. We are really good at RNAi interference. And we decided the best way to scale this company is to focus on that. As I said, cells don't care what the sequence of the RNAi trigger is that you introduced. And so we spent an awful lot of time in getting good at RNAi and getting good at bringing these RNAi triggers into a variety of cell types. What we cannot be experts in is all the various areas, all the various disease states that we can address. And so we rely a lot on KOLs in these various areas to help us prioritize targets. So within pulmonary, we are in that phase right now. I think that we are proving out our ability to deliver to the lung with ARO-RAGE, with ARO-MMP7 and eventually with ARO-MUC5AC. And we are prioritizing what our fourth and fifth and sixth drug candidates are going to be. There's -- as I said, we think this is a target-rich environment. And as we get into these larger Phase II and Phase III studies in asthma and COPD, we will continue to rely on KOLs, but also as we build out that vertical, we will bring in senior pulmonologists to help us to really understand that market.