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

All right. Good afternoon, everyone. Thanks for joining us at the Morgan Stanley Global Healthcare Conference. I'm Mike Ulz, one of the biotech analysts here, and it's my pleasure to introduce the team from Arrowhead Pharmaceuticals. To my immediate left, Christopher Anzalone, CEO; and to my far left, James Hamilton, CMO and Head of R&D. Before we get started, I just need to read a quick disclosure. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. With that, Chris and James, thanks for sharing your time with us today. We really appreciate it. And maybe to kick things off, I'll just hand it over to you, Chris, to make some introductory comments, and then we can hop into Q&A.

Sure. Thanks very much for having us. It's really a pleasure to be here. It's a really exciting time for us right now. We have so much going on. We always have so much going on, on the R&D side, but we are also about to make our transition into being a commercial company. We've got a November 18 PDUFA date for plozasiran, we're excited about the data have been quite good. And so we look forward to making that transition. But even with that, our R&D organization continues to operate extraordinarily efficiently. We've got a ton to talk about.

Yes. Great. And I thought that's where we could start. Maybe plozasiran, FCS, as you mentioned, you have a PDUFA date coming up. So maybe talk about sort of launch prep and strategy there?

Sure. So plozasiran is our -- will be our first commercial product. It's designed to reduce the expression of APOC3 and it lowers triglycerides, and it does that in spades. Our FCS Phase III study was very compelling. We were lowering triglycerides by around 80% from baseline. We saw a statistically significant improvement in risk of acute pancreatitis. And so we are -- guns are blazing trying to develop this commercial organization. Everyone is in place down to our reps. Everyone is hired and in training. And so we're ready to go where we expect to have a drug in channel in a timely fashion. And so I think we're ready to launch. We are just about to begin label negotiations with the FDA. So far, interactions have been productive and timely. So we look forward to it.

Yes. So very exciting launching your first drug. So congratulations. Maybe you can just talk about the market opportunity in FCS and how you think about that?

Sure. So FCS is a very narrow market. It's an ultra-orphan disease. It's thought that there are about 1,000 people in the United States with familial chylomicronemia syndrome, at least genetically defined FCS. And so these are patients with the known genetic mutations associated with this. They've got very high triglycerides in the thousands. They are on extraordinarily restrictive diets. They can have recurrent bouts of pancreatitis and it's been untreatable. There's just simply been no way to lower triglycerides enough to decrease the risk of pancreatitis. We think that -- we think that's changing now. The market may be a little bit broader than that. We also studied a population that we call clinically defined FCS. And so these are patients who have really similar phenotype as genetic FCS patients. And so they've got, again, triglycerides in the thousands. They have -- they can have recurrent bouts of pancreatitis. They just don't have the known genetic mutations associated with FCS. It was our thought and frankly, the FDA's thought that there's no reason to treat one and not the other. And so in our Phase III, we treated both and both populations responded similarly to the drug. And so we'll see what our label says. We are hopeful that it stipulates both because both populations truly need this kind of therapy. It's hard to size those clinically defined FCS patients, but we think it is more than 1,000 or so genetic FCS patients. As I said, we are prepared to treat both. And so let's -- we will see what the FDA says in our label, and we'll see how cooperative the payers are going to be in getting this, I think, important medicine to these patients who need them.

Yes. And you're also looking at SHTG for plozasiran as well. So maybe talk a little bit about just the market opportunity there and how it compares to FCS?

We are. That's a substantially larger market. The concept is the same, right? In many people with elevated triglycerides, they have a heightened risk of pancreatitis. Pancreatitis is certainly painful, requires hospitalization and can be fatal. So this is a real thing. this SHTG population or severe hypertriglyceridemia is defined as people with triglycerides above 500, 150 and below is normal. So these are very, very elevated patients. And again, as with the FCS patients, the higher their triglycerides, the greater chance is that they will have pancreatitis. Importantly, we want to get people treated even before they have their first bout of pancreatitis because once you have one bout of pancreatitis, you've got an enhanced risk of having it again and again and again. And so we have several Phase III studies ongoing. I'll let James describe these. We are fully enrolled in 3 of these studies. Go ahead?

Sure. So just an overview of the Phase III programs. The SHASTA-3, 4 programs are largely the same population, but the FDA wanted to see 2 studies with the same endpoint being triglycerides as the primary. And those each enroll several hundred patients, fully enrolled, should have data probably second half of next year. for SHASTA-3, 4, then there's SHASTA-5 that is focused on the highest risk population. That is a time-to-event study, where we're enrolling patients with extremely high trigs, greater than 1,000 and a history of pancreatitis. And they'll get drug and we'll monitor them until they have events essentially. So we're looking at event rate on active versus placebo in SHASTA-5. Then there's the MUIR-3 study, which is in the HTG population. This is the population with trigs 150 to 499, not as severe. It's largely a study to build a safety database that was required by FDA. So that's the largest of the study.

And the take-home message here is that we're just -- we're looking for lowering triglycerides in these patients. The biology here is clear. Again, the higher the level of [ circulating ] triglycerides, the higher the risk of pancreatitis. In the FCS Phase III study, we saw, as I mentioned, a decrease of around 80% from baseline of triglycerides. And so our goal here is to get as many patients at goal as we can. And that first goal would be getting them below 880 milligrams per deciliter. Second goal then would be to get them below 500 because we know these are 2 important milestones for pancreatitis risk.

Makes sense. And can you talk a little bit about in terms of the Phase III strategy? You kind of walked us through it, but it's including a little bit an extra study to maybe look at acute pancreatitis relative to what your competitor has done, just the rationale there?

Right. So we are looking at event rates in SHASTA -3 and 4, and there is a secondary endpoint looking at pancreatitis in -- we will be able to aggregate data from those studies and look at event rates. I think the SHASTA-5 is sort of a belt and suspenders approach that's specifically looking at AP event rates. So in the event that we didn't have enough events in the SHASTA-3, 4 program, we'd have SHASTA-5.

And to be clear, it's not that we don't think that the patients in SHASTA-3 and 4 are at risk for pancreatitis, they absolutely are, but it's a short study. It's a year long. And so we wanted to better ensure that we do show the improvement in AP risk that we expect, and so we did SHASTA-5.

Yes. Makes sense. Your competitor recently read out their 2 studies and maybe just share what you've learned from that or anything you can apply to maybe your studies in any way?

And those were compelling top line data. We look forward to seeing the full data set whenever they're available. But they mentioned that they saw an improvement in acute pancreatitis risk. That's a very good thing for these patients. It's a very good thing for the field. This is an education field. It has been an untreated field forever because there's never been a way of lowering triglycerides substantially enough to move the needle on the risk of pancreatitis. And so there are lipidologists, there are cardiologists, there are endocrinologists who don't fully appreciate that triglycerides at these levels are really bad actors. And so to the extent that anybody shows this relationship between lowering triglycerides and therefore, lowering the risk of acute pancreatitis is a very good thing and will help us to educate payers and providers and patients as to the need, the necessity of these therapies. But it is -- we think it's a good thing that there are 2 companies capable of treating this disease. It's a good thing for patients, and it's a good thing for the field because 2 companies are better at educating the field than one company. And so we're happy to compete with them in the marketplace. Ultimately, we will be working together and helping the world understand the need for these.

Makes sense. And maybe just remind us again when those 3 studies read out?

So the SHASTA 3 and 4 are fully enrolled as is the MUIR-3 study and patients are on drug for years. So we'll have readouts probably around Q3 next year.

Yes. And can you talk about the enrollment criteria you used versus maybe the competitor? And is it sort of similar? Do you expect similar sort of patient populations? Or could it be more severe or less severe?

I think they're pretty similar. I think we have not published our baseline characteristics yet. We will do so. But from what Ionis has shared, I think their core studies enrolled a very similar population to our SHASTA studies and likewise, for our MUIR study versus their ESSENCE study.

Yes. And can you talk about the analysis of AP events in SHASTA-2 and 3? Is that something you're going to combine across the studies? Or what's the plan there?

Yes, sure. We'll be able to combine. That is the plan that is built into the statistical analysis plan to pool events from those studies.

3 and 4, not 2 and 3.

Too many studies. All right. Great. And maybe just last question before we move on, just differentiation versus the competitor as we stand now.

Sure. Historically, look, it's hard to compare 2 different agents across various studies. But historically, what we've seen is plozasiran has shown a greater decrease in triglycerides. That's not too much of a surprise given the modalities. RNAi is generally a more potent way of silencing the target gene than antisense oligos. Again, that's been borne out in the prior studies. And for instance, in the FCS Phase IIIs, we saw, as I mentioned, around an 80% reduction from baseline. And I think they show around 40% reduction from baseline. But look, their drug is also clearly active. And so we expect -- they've had a good launch for FCS so far, and we expect them to be an SHTG. And again, that's a good thing for all these patients. Our dosing also is a little bit different. We'll be dosing quarterly subcu. They dose monthly subcu. So again, we like how our drug stacks up against theirs. But ultimately, the world is a better place with these 2 drugs rather than one of them.

No, it definitely makes sense. Maybe we can move on to just zodasiran and maybe give us a little bit of background there and remind us where you are in development with that program.

Sure. James, do you want to talk about the pathway and the target?

Yes. For zodasiran, right now, we're pretty focused on the HoFH population. And we showed data a while ago at [ EAS ] a couple of years ago from our GATEWAY study. That was a small open-label Phase II study in the HoFH population, where after 2 doses, we were seeing a 40-plus percent reduction in LDL cholesterol in that population. So that has inspired us to launch the YOSEMITE Phase III study that's also in the HoFH population. We'll enroll about 60 HoFH patients to receive 200 milligrams of the drug. And then LDL, of course, is the primary there.

Yes, just like a layup to us. We have high confidence that this drug is going to work. It has been highly active in all the prior studies. It's been well tolerated. There is a clear need to lower LDL in these HoFH patients. There are antibodies out there that are doing that right now. We think that we should stack up well against them. We think that we should have very similar LDL-C reductions as them, but we would expect a once-a-quarter subcu injection rather than a once-a-month IV infusion. So we like where that sits. The incremental commercial costs for zodasiran would be minimal. We have -- we will have sales folks out selling plozasiran anyway. And so we'll just add this to the bag, and we just think that there's some revenue to be found there. It's a very small market. So this is not going to make or break the company, but we think incrementally, it's a positive thing for us.

Got it. Maybe we can keep moving on. There's a lot to talk about. So maybe move to obesity program. You have 2 [indiscernible] there. So maybe give us a little bit of background. And I think you're going to have some data later this year. So maybe highlight...

Again, James, do you want to talk about the pathway, the INHBE pathway?

Yes. So these are really interesting programs. This is another way, a non-GLP mediated pathway to potentially address obesity. INHBE and ALK 7 are part of the same axis that is essentially a way of sending messages in the setting of increased circulating nutrients telling from the message from the liver to the adipocyte, instructing the adipocyte to store fat. And the idea here is that we could either knock down the protein that's being expressed by the hepatocyte that's Activin E of the gene is INHBE. So we can intercept that message or we can knock down the receptor, which is ALK7 at the adipocyte cells. Both of those programs are in the clinic now. INHBE is probably about 3 months ahead of ALK7 and as Chris mentioned, we should have data end of the year with both of those programs, probably a full set of SAD/MAD data in obese, otherwise healthy volunteers from INHBE, we're also looking at combination cohorts of INHBE plus tirzepatide in that study. And then with ALK7, the study is a little bit behind INHBE. So we'll have data from the SAD, some of the MAD data as well, same patient population, obese otherwise healthy volunteers. And then we'll start to get some of the combo cohort data from ALK7, probably more of that in the 2026.

Yes, we're really excited about these programs. The animal data were very compelling. Not only did we see weight loss, but importantly, it was high-quality weight loss. We saw the loss of visceral fat. We saw muscle sparing. And so there's a lot of -- we think there's a lot of places where that can fit in with existing obesity therapies should that translate into humans. We're doing full body MRIs in these studies, and so we will see the quality of weight loss in both of these. And ALK7 is important not only because of these things, but also this is the first time that we have actually, frankly, anybody has been in the clinic delivering an RNAi molecule into adipocytes. And so it's important for us for 2 reasons. One, we're excited about the drug candidate. But two, we're excited about the platform. Should we have proof of concept that we can knock down ALK7 in fat there's a ton of additional targets that we'll be going after. As the largest endocrine organ in the body, there will be a number of good metabolic targets in adipocytes. And so be prepared for several additional targets in the near term coming out of that platform. In addition, we have this ability to do dimers. We can talk about that in a few minutes if you have time. Our first dimer or bispecific, if you will, is a PCSK9 APOC3 dimer that is directed towards hepatocytes. But we also like the idea of bringing the dimer technology to adipocytes, maybe combining ALK7 with something else or maybe combining other targets that we're not talking about.

Yes. Maybe just when you share the obesity data later this year, you said proof of concept. What does proof of concept look like to you, like sort of specific thresholds you're looking for on key endpoints or something like that?

Yes. I don't -- we are truth seekers here, right? I don't know what we're going to see there. We are hoping that we see signs that these are translating from animals to humans. If we do see that, then we will design Phase II to really understand how these could fit into therapeutic paradigms. But as the first studies, we're looking forward to seeing do we have some signals here? Do we see higher quality weight loss? Do we see weight loss at all? Again, the animal studies were quite compelling. We saw weight loss that was not dependent on caloric restriction. That's interesting. And we saw high-quality weight loss. That's also interesting.

And assuming you see what you want to see and you kind of keep moving it forward, just broadly, what's the strategy in obesity? Is it monotherapy? Is it combination? Are these things you might take forward yourself to commercialize? Or how are you thinking about that?

Yes. Let's see what these data look like. We -- our job -- I can tell you one thing that we're not focused on. We're not focused on putting the GLPs out of business. Those are good drugs, and they certainly have a place within the broad paradigm of obesity treatment. There's a lot of white space there. Maybe these could be used as monotherapy, but also they could be used in combination with some of these existing therapies. They could be used as maintenance therapy. They could be maybe used in combination with lower dose of GLPs. There's a lot of ways that we can play into I think. And so we look forward to seeing what the data will look like. Broadly speaking, we don't see these as our last 2 obesity candidates. I think that you'll see additional ones next year, either through adipocyte targeting or liver targeting or even potentially CNS targeting. We've got this burgeoning blood-brain barrier platform. We just announced back this morning that we filed a CTA for our first drug candidate, MAPT against tau for Alzheimer's as well as other tauopathies. We can use that platform as well for other central targets related to obesity. And so we see this as a burgeoning franchise for us, and it really nets into a growing focus of ours in cardiometabolic.

Makes sense. You did mention the dimer, so maybe you want to talk a little bit more about that.

Sure. We're very excited about the dimer or bispecific depending upon how you want to call it. The -- Jim, do you want to talk about the 2 targets?

Right. So the dimer targets simultaneously PCSK9, of course, with the intent of lowering LDL cholesterol and then APOC3 to lower triglycerides, remnant cholesterol. And these are not co-formulated, these are linked siRNAs. So it's a single molecule that can simultaneously target both of those genes. This should be entering the clinic by end of the year. And the intent right out of the gate is to enroll mixed hyperlipidemia patients. So patients with high triglycerides and high LDL cholesterol at baseline and we'll dose escalate, but we should know pretty quickly if the drug is working, if it's effectively hitting those targets, getting appropriate knockdown, the knockdown that we expect and the commensurate effect on lipids.

Yes, we're really excited about that. The world knows that lowering LDL cholesterol in patients with elevated LDL is an important tool to decrease the risk of major cardiovascular events. There's a ton of new and not so new data to suggest that remnant cholesterol is also a substantial risk factor. There's just been no way of lowering that to a great -- to a large extent. APOC3 is a way of doing that. We are not going to address that with plozasiran that stays as a pure-play pancreatitis drug. And so we see a big opportunity here to combine the known benefits of lowering LDL with the potential benefits of lowering triglycerides or remnant cholesterol. And again, as James said, I think we know if we have a drug sometime in the middle of -- middle or third quarter or so of next year.

Okay. Great. Maybe we can move on to just CNS. You have a pretty powerful platform there. So maybe just give us a little bit of background and kind of where you're at with your programs.

Sure. It is a potentially disruptive platform. And I say potentially because we still have not yet been in humans. The animal data have been very compelling. We've shown that we can deliver RNAi molecules to deep brain regions. In fact, broad -- we have broad distribution within the brain, and this is after a simple subcutaneous injection. And so this systemic delivery for treating CNS diseases has been a holy grail in this space for years and years. And once again, our -- the animal data are compelling. And so we are looking forward to seeing if that translates into humans. We have 3 initial or near-term clinical programs. The first one is MAPT against tau. As I mentioned, we just filed a CTA for that, and we expect to begin dosing patients and healthy volunteers by the end of the year. The next one will be ARO-HTT against Huntington's disease. That has been licensed to Sarepta. We expect to file CTA for that one also by the end of the year. And then the third will be alpha-synuclein. We have just partnered with Novartis on that. We expect that to be CTA-ready sometime towards the end of the first quarter of next year. We have a number of additional targets that we are developing internally as well to follow those up. But my hope is that sometime next year, we will have MAPT knockdown data in the CSF in humans to know, a, is that drug candidate, ARO-MAPT active; and b, is this broader platform working. So I think that's a really important potential value driver for us. So we are excited to see that.

Yes. You mentioned the recent Novartis deal for alpha-synuclein. Maybe just talk a little bit about sort of the rationale there and maybe a little bit of detail of the transaction.

Sure. So look, our model is based on partnering. I mean we have an extraordinarily productive discovery engine. And so we can do 1 of 2 things with that. We can either tap the brakes because we can't and frankly, no company, I don't think, is capable of commercializing all the drugs that we are able to develop. We will routinely every year, we think, push 3 to 4 new drug candidates into the clinic every single year. So either you slow that development down, which doesn't make any sense to us at all because it is value creating and we are creating things that are good for patients or you have a model that's based on a mix of holding on to some candidates to develop and eventually commercialize ourselves, and we find partners for other ones. This Novartis deal is just the latest in that model and included alpha-synuclein or ARO-alpha-synuclein for treating Parkinson's as well as 3 additional CNS targets that they've already given us. Importantly, those additional targets do not come from our pipeline. And so this truly is found value and we'll begin working with them as soon as that deal closes. Alpha-synuclein is a great target. So we look forward to seeing those data. It was important to us from the very beginning that MAPT was off limits. We were not going to entertain partnering discussions with that. We wanted to turn those cards over ourselves, and we wanted to hold on to that at least for now for ourselves. But alpha-synuclein made sense for us to partner.

Okay. Got it. Anything else in the pipeline that we haven't talked about yet that you want to highlight? Too much to pick from...

We have a lot going on. We have the ability to address 5 different cell types with RNAi. We are the clear leaders there, and we're moving as quickly as we can to build out this pipeline, both for ourselves as well as for partners. We talked about MAPT. We talked about the dimer that will be in the clinic also this year. We have -- as part of our partnership with Sarepta, we are developing a drug, ARO-DUX4 against FSHD and the drug ARO-DM1 against DM1. I think that we will have some data with them by the end of this year. We're excited about those programs. There are competitors there, but we think there's substantial unmet medical need and our animal data were compelling, and we look forward to seeing if that translates.

Yes. Got you. And maybe you could talk a little bit about the Sarepta partnership. There's been perceived challenges there this year a little bit that's weighed on the stock, but just talk about how that's going...

Sure. Sure. The -- yes, if you look at our stock chart, you can see when Sarepta ran into their challenges. I actually don't think that those read on us. My expectation is that Sarepta will continue to perform. They have indicated as such -- we have already hit one of the near-term milestones, $100 million milestone related to DM1 dosing, I guess, about a month ago. We expect to hit the next milestone there to trigger $200 million by the end of the year. And then we have the first of 5 $50 million annuities that will be triggered, I think, in February of next year. We expect Sarepta to perform on all of those. And it sounds as though these assets that they have partnered with us are important to their long-term strategy. And so I expect them to continue to perform. It's been a good partnership for us. We've -- gosh, we've been paid almost $1 billion this year from that partnership. I think the all-in biobucks is somewhere around $11 billion. I think there will be strong partners in the development and as well as commercialization for these assets. And so I think these are -- I think they are a good home for some of these assets and again, we expect them to continue to perform.

You mentioned sort of $50 million milestone next year as well over 5 years, you get $50 million, I think, each year. But are there other bigger milestones associated with some sort of development sort of progress next year as well or?

I don't expect other ones for next year. As I mentioned, we do expect to trigger a $200 million milestone by the end of this calendar year. Next year, my expectation is only that $50 million from that partnership. As you know, though, we've got partnerships with the GSK on both HSD for NASH as well as HBV. We have a partnership with Amgen on Olpasiran, our drug against Lp(a). We got a partnership with Takeda with fazirsiran. That's our drug against AAT liver disease. They're in a Phase III study there. We have 50-50 profit share, for instance, in the U.S. and 20%, 25% royalties ex U.S. And then of course, we've got Sarepta deal and then we've got this new Novartis partnership. And so we've got a number of partnerships that are important for us. I think that there's a lot of value that they will create over time. And importantly, will enable a number of, we think, high-quality drugs to reach patients without having to commit capital to them.

Yes. And maybe you could talk about your current cash position and just how far that gets you and what that covers in terms of your pipeline plans?

Sure. So we have said publicly that our current cash as well as our existing partnerships that will bring in expected milestones get us into 2028. Our last guidance was before the Novartis deal. And so we have an additional $200 million on top of that. So we feel like we are in a very good position financially. We are able to continue to move these programs forward. We do expect that we will be in a position to do additional business development between now and 2028. And so we don't have enough cash to get us to breakeven, but we kind of see when that is. And it feels to us that we could piece together business development to get us there. And so we are at an interesting inflection point with this company. A, we are about to become commercial. I cannot be overstated. That's an important transition for us. And it's not at the expense of a productive R&D organization. We will always continue to be a productive R&D organization. So that's one transition. Second, we have the capital to move these important programs forward. And third, we have we have line of sight on when we could be independent of the capital markets. And so as the biotech markets ebb and flow, we can -- we do masters of our own domain, if you will, and not be dependent upon any current...

Yes. Great. Maybe in the last 1.5 minutes here, you hit on a lot of these things, but maybe you could just walk us through over the next 1.5 years or so, like what the catalyst path is and what we should be focused on?

We've got a time just over the next 12 months. So we just filed a CTA for MAPT, and we expect to do that for the dimer also by the end of the year. We have our PDUFA date for plozasiran on November 18. We expect to have our first slot of obesity data by the end of the year. I expect that we'll have some DM1 and DUX4 data with Sarepta by the end of the year. We expect to have additional obesity data sometime in the first half of '26. Towards the middle to late part of '26, we'll start to have MAPT knockdown data from CSF in the human subjects in patients with healthy volunteers. We'll have dimer data to know how well we're reducing LDL cholesterol and remnant cholesterol, triglycerides with the dimer. I think that's a substantial value creation moment. And then in the second half of the year, our Phase IIIs against SHTG with plozasiran are going to read out. SHASTA-3, SHASTA-4, MUIR-3 will read out. And then ultimately, towards the fourth quarter of next year, I think we'll file our [ SNDA ] to expand the label -- our plozasiran label to include severe hypercholesterolemia. So I think we are in a great spot right now. But honestly, 12 months from now, I think we look like a vastly different company. And I think we look like a good company right now.

Yes. Great. Lots to look forward to. So it looks like we're out of time. So thanks so much, Chris and James. Appreciate your time.

Thank you. Pleasure.