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

Everybody, we're going to get going here with our next company presenter at the BofA Annual Healthcare Conference. My name is Jason Gerberry. I'm one of the SMID-Cap biotech analyst, and pleased to be introducing Arrowhead and CEO, Chris Anzalone. So Chris, thanks so much for joining us.

And you had a lot of interesting updates on the recent Q. I guess, most notably, I guess, some of the dynamics with sort of pulmonary enrollments, but some of the catalyst time lines are still intact. You've got important Phase III data for your FCS program. So that's clearly going to be topical. So I think those are a couple of topics. Hopefully, we can really drill in on.

Yes. Great. So thanks for having us. Yes. We have a busy year this year. There's an awful lot going on. As you pointed out, the FCS data should be coming out soon. The last patient, last visit was a week or 2 ago, and so the database should be locked over the next week or so, I guess. And so we expect data in June. We have a cardiometabolic webinar day towards the end of June, where we'll be talking about both zodasiran and plozasiran. And included in that, we'll be talking about the FCS data. So we're looking to see that.

Yes. All right. Before we jump into like specific programs, and you had some strategy updates in quarter prior, right? And then so some management hires within sort of key verticals. Can you maybe just talk about where you are process-wise with sort of rounding out the leadership team?

Sure. Yes. So historically, we have had the luxury of being able to do everything. We have a platform that can be usable across multiple therapeutic areas, across multiple cell types now. And so these early-stage programs can be cheap. And because we are going after well-validated targets, we don't require deep, deep biological expertise in these areas in the early stages. And so that was great. We've done a lot of that. We will continue to do that. But as we start to get into these later-stage assets, we need to really build out our infrastructure and our capabilities in certain therapeutic areas. We need to allocate more capital to these large and potentially complicated studies. And so we are having to apply a bit more focus onto our business. And so the way we look at this is as you mentioned as is a series of verticals, cardiometabolic vertical is our bread and butter. That is our clear focus in the near to mid to long term because we think we have right now 2 assets shortly, more assets, we can talk about obesity in a bit, but we'll have 2 obesity assets in the clinic by the end of the year. I think that's important. That's all part of cardiometabolic, that will drive a ton of value, we think, over the coming years in a very regular basis. I think I mentioned on the conference call between plozasiran and zodasiran, I think that almost every year starting next year, we will have -- or starting this year, I guess, we'll have NDAs or supplements to expand labels almost every year for the next 6 years. And that's just in those 2 assets, then you layer obesity on top of that, I think there is more. In any event, so we need to make sure that we are properly resourcing cardiometabolic. We look it at other verticals. Pulmonary is an important one. Skeletal muscle of course, compliment. These are all good verticals. And I think that we will be partnering with in these other verticals in some fashion in order to make sure that we can properly resource cardiometabolic. We're building out commercial for that right now. We'll be bringing in a senior person to manage the clinical functions of that right now. We have Bruce Given, as you know, our former COO, who retired in 2020, I guess. And we twist his arm to come back to get the CVOT running and the SHTG Phase III is running. And then we'll have eventually somebody who will manage that whole -- that vertical.

So I know that maybe getting some additional non-dilutive partnership financing in the door is something that you've talked about. I guess the one thing I wonder about, if I look at sort of Alnylam, Ionis is parallels, right? There are similar companies that can generate, as you say, a lot of RNA-targeted therapies. You can kind of do that in a cost-efficient way. And then there's a partnership model that's clearly in place for both of those companies. I guess if I'd say one observation is when it comes to large CVOT trials, right, partnership comes into play where you can get a mid-teens to maybe low 20% royalty at very good economics with some good milestones. So I guess that's the one thing that I think it catches investors my attention like for a company Arrowhead size to take on a CVOT versus sort of the cost risk sharing approach. We can still enjoy the economics and the upside of that opportunity, but is it a logical target to maybe engage in sort of some cost risk sharing?

Yes. So it's a great question. We just think there's so much value in these -- in zodasiran and plozasiran. And these are really unique assets that we feel like we need to protect them. There's a lot of value that we should be creating based on these. And so we want to be judicious about our partnering there. Certainly, we can do geographic partnering. I like the idea of us commercializing those drugs in the United States. In the near to midterm, I don't think we're going to have the ability to commercialize those in broader markets ex-U.S. And so I think we can do good deals at some point, ex-U.S., for those 2 assets. And I think that, that will go a long way to financing the CVOT.

Yes. Maybe last question just on sort of overall kind of strategy related matters. You have talked about maybe royalty deals, maybe taking on even debt. What are some of the guardrails to think about as you guys entertain different financing mediums or approaches and what the capital structure might look like?

Sure. So there's a number of levers that we are looking to pull. There's not one structure that we will rely on entirely to bring in the capital we need. We just need too much capital over the next several years. We talked about partnering. I think that is a lever or probably a series of levers that we'll be pulling between the various verticals, maybe even some discovery deals over time, I think that there's a lot of capital we can bring in there. Second, you mentioned these royalty deals. I like those. The longer you wait to do those, the better the terms are going to, of course. And so I guess that's the balance. When do you pull the trigger on those? But those are -- there are increasing number of firms that can do those types of deals. These -- all of our assets -- all of our wholly owned assets are entirely unencumbered, right? So we're not stacking royalties on royalties. And so I like the idea of finding the right deal with reasonable royalties that we capped at something. I think that makes sense as a lever to pull. You mentioned debt. We are approaching a stage in our company where we can think about debt. But it's got to be the right kind of debt. It's something that does have some risk-sharing feel to it, maybe long-dated debt, something like that is something that we would consider at this point. And then -- so I think we can bring in a substantial amount of capital using all of those levers, and that's really our focus right now.

Okay. Maybe let's shift gears to cardiometabolic and plozasiran for FCS is the next clinical update. You have a little bit of a twist in terms of enrollment strategy relative to Ionis, which recently read out FCS data and that you'll have sort of the non-genotype of FCS, so basically above 880 mg of triglyceride levels. Maybe just some of the pushes and pulls there. Does that pose a risk that you may have lower or fewer pancreatitis events? I imagine you've looked at this on a blinded basis. And you've looked at the event rates that Ionis has generated. And so I guess as we think ahead to data, I'm wondering what you can share from that perspective.

So look, we look forward to seeing what those data look like. I haven't seen anything yet, of course. You mentioned bifurcating that market a little bit in terms of genotypic FCS and what we think of as phenotypic FCS. And so again, as you've mentioned, these are patients without the common mutation, but still have triglycerides over 880 in history of pancreatitis. The way we view it is that there are patients who need this drug. There are patients who are on very restrictive diets and have bouts of acute pancreatitis. And we sort of don't care if they have a certain mutation or not. If they have a certain phenotype then they need our drug. And so we study both. Our Phase III was about half and half, about half genotypic, half phenotypic. My hope is that, that will be expressed on the label. The FDA will tell us that, but that is my hope that -- this is the population that we studied. And I think that, that is a potential differentiator between us and [indiscernible] at least right now. And then in terms of expectations of events of pancreatitis, we'll just see. Now we have seen events of pancreatitis. I have no idea how many of those are on placebo and how many of those are not on drug, of course. But we have seen events and -- as with the triglyceride lowering and the APOC3 lowering, we're looking forward to seeing those data in the next month or so.

Was there an FDA interaction before that study was started? And were you steered one way or another to have genotype FCS versus none? Just curious.

Yes. No, that's an important question. We did have interactions with the FDA, and we did talk about studying these 2 populations. And so we went into this study with alignment with the FDA that these are 2 populations that we are studying.

So yes. Because I mean, to your point about label, right, and kind of like the difference between a couple of thousand patients versus like 1 million, right? You got 880 SHTG.

Again, so let's slice that. Within -- so I think of this triglyceride market as a series of slices, right? The smallest would be genetic FCS. We think there's maybe 1,000 of those thereabouts in the United States. And then you look at patients with trigs above 880 and history of pancreatitis. So those 2 things, there are thousands of those. We've come out that in a -- by a number of ways to try to figure out what that number is. And it sort of runs the gamut. But I think it's fair to say that there are thousands of those. And then you go up with -- to patients with trigs above 880 maybe no history of pancreatitis, maybe pancreatitis, and there's about 1 million of those. And then you go to the number of patients with trigs above 500, and there's about 3 million to 4 million of those. That becomes a very large market. That's the broad market that will be addressing -- with just a 3, 4 and 5. That's exactly right.

Yes. So we've kind of done a lot of comparisons and looking at SHASTA-2, the Ionis data, these crash out comparisons get a little tricky, so far.

They are tricky.

It seems like maybe the purest way and correct me if I'm wrong, is placebo adjusted reduction in APOC3, right? Like if you're presumably knocking that down 70%, 80%, and there's kind of same ballpark. I guess I wonder why, then it just comes down to dosing frequency, right? And then I guess, AE profile. Is that like a fair way to -- I don't want to oversimplify these comparisons that you know -- the Street will be making your data readout.

Yes. Yes. I think APOC3 knockdown is something that we should all look at, in dosing frequencies is something we should all look at. Within the dosing frequency, I would look at durability as well. So do you -- for us, we expect to dose quarterly, that is infrequent enough that we don't see APOC3 coming back really. I think it's important to look at those curves within the dose and frequency, right? So whether you're dosing once a month or once every 3 months, are you clamping APOC3 down. And then of course, what everyone cares about is triglycerides. How much...

Yes. And I guess I don't know if you buy into this right, but if those patients with non-genotypic FCS, they have functional LPL activity. So it seems like those patients tend to see higher percentage reduction in triglyceride. So then it kind of creates this issue of demographics between the 2 studies and making apple-to-apples comparison. Is that my off-base?

I don't have a feel for whether or not the phenotypic FCS patients versus genotypic FCS patients will have a different response in terms of triglyceride lowering. I just -- I don't know the answer to that. But what's fascinating is that if you look at our Phase II data, my expectation is that we can get the majority of patients down below 5 -- I'm sorry, down below 500 and that's sort of a threshold for...

Normalcy.

Yes, for -- I mean it's still elevated, but it's -- that threshold for triggering pancreatitis, right? And so the majority of patients will be below that. And in fact, I would expect some patients to normalize. That's the strength of plozasiran, I think. It leads to such drastic APOC3 and triglyceride-lowering.

Yes. Okay. Obviously, a lot of this is all something that we talk about and look at it as, I guess, the Street and sell side to thinking about SHTG, right, because that's obviously, the bigger, more commercially relevant market segment. I was struck by your decision to run a trial like SHASTA-5 or planning to run that trial versus Ionis looking at a [ pooled ] Phase III to look at pancreatitis trend or maybe stats. It seems like when I look at there's 2 studies maybe, SHASTA-2 and liver was studied in SHTG, and the event rates are kind of noisy and they're very discordian. And so I guess I get the sense that like we're flying a little on the blind and exactly what these sort of event rates are, but I guess maybe you've already made the calculated decision that going a pooled Phase III, you just have concerns that maybe you won't accrue enough AP events. Is that...

Yes. So we know that the approval endpoint there is lowering triglycerides. And so we want to sprint to those data. So we can have that supplement and expand the label into SHTG. We would like to have acute pancreatitis events data for the payers. We don't want to slow down our ability to get this approval while we're waiting for that. And so it made sense for us to split that out. Look, in a perfect world, we get that done about the same time as we get SHASTA-2 and 3 done, that would be great. But if not, we want a sprint to getting this approved. So we're really excited about these markets because, a, patients have never had anything that can move triglyceride like this. And so it is -- you look at fish oils, you look at fibrates and such. And you may be moving triglycerides 20% to 30% to maybe 35%, and that's good. It's better than nothing, but it doesn't really move the bar for some of the patients with severe hypertriglyceridemia. All of a sudden, if you can think about lowering trigs by 80% to 90%, it's a real game changer. And so this is market that has needed these kinds of drugs, and we're excited to bring them there. But also, this is a medical affairs business, right? This sort of feels like sort of where we were with LDL decades ago before statins. And we need to help people understand that triglycerides are a bad actor. As we do that, I think we have a really interesting opportunity because of what this -- what plozasiran is able to do and zodasiran, frankly.