Arrowhead Pharmaceuticals (NASDAQ:ARWR) Q1 2020 Earnings Call

0:00 Ladies and gentlemen, welcome to the Arrowhead Pharmaceuticals conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. I will now hand the conference call over to Vincent Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, Vince.

0:23 Thanks, Sydney. Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its fiscal first quarter ended December 31st, 2019. With us today for management are President and CEO, Dr. Christopher Anzalone, who will provide an overview of the quarter, Dr. Bruce Given, our Chief Operating Officer and Head of R&D, who will discuss our clinical programs, and Ken Muskowski, our Chief Financial Officer, who will give a review of the financials. In addition, we welcome three new members to the management team. Jim Hazard, our Chief Commercial Officer, Dr. Javier San Martin, our Chief Medical Officer, and Dr. Kurt Bradshaw, our Chief Scientific Officer. Dr. San Martin and Mr. Hazard will be available during the Q&A session of today's call.

1:08 Before we begin, I would like to remind you that comments made during today's call contain certain forward-looking statements within the meaning of Section 27 of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact including, without limitation, those with respect to Arrowhead's goals, plans and strategies are forward-looking statements. These include statements regarding our expectations around the development, safety and efficacy of our drug candidates, projected cash runway and expected future development and commercialization activities. These statements represent management's current expectations and are inherently uncertain. Thus, actual results may differ materially.

1:53 Arrowhead disclaims any intent and undertakes no duty to update any of the forward-looking statements discussed on today's call. You should refer to the discussions under risk factors in the Arrowhead's annual report on Form 10-K and the company's subsequent quarterly reports on Form 10-Q for additional matters to be considered in this regard, including Risks and other considerations that could cause actual results to vary from the presently expected results expressed in today's call. With that said, I'd like to turn the call over to Chris Anzalone, President and CEO of the company. Chris?

2:27 Thanks, Vince. Good afternoon, everyone, and thank you for joining us today. We've made a lot of progress over the last two years as we've built clinical validation of our TRIM platform. Early in 2018, we predicted that moving Trim into the clinic could drive substantial value for us, and that came to pass. We initiated clinical studies with Arrow HBV, now J&J 3989, and Arrow AAT. That same year, Amgen initiated clinical studies with AMG 890, formerly Arrow LPA. Together, we see these as first clinical proofs of concept for the Trim platform and represent what we believe to be promising future drugs. We sought to accomplish even more in 2019, We thought we could build shareholder value by continuing development of existing programs and introducing into the clinic two potentially powerful cardiometabolic drug candidates. As with our goals for 2018, these two were accomplished. We launched a potentially pivotal Phase 2-3 study with Arrow AAT, Janssen launched two large Phase 2 studies with J&J 3989, and Amgen continued their study with AMG 890. Importantly, we also expanded our clinical pipeline by launching Phase I-IIa studies for cardiometabolic drug candidates AeroApoC-3 and AeroAng3, and we reported initial data from these studies at the American Heart Association Scientific Sessions in November. This would have represented a very productive year for any company in our industry, but we were not finished.

3:55 We also filed to begin clinical studies for our first tumor-targeted drug candidate, AeroHIF-2, and the first ever candidate against the highly anticipated NASH target, AeroHSD. So how do we keep up this productive value creation? What is the growth story for 2020? We think of three broad value drivers. First, 2020 is the year of bringing RNAi outside the liver to address a raft of new unmet medical needs. We are clear leaders in this endeavor, and I believe we will have clinical proof of concept to silence target genes in lung and solid tumors by the end of the year. Just look at what we have done in hepatocytes, and we believe we can do the same in lung and solid tumors. This model of rapidly expanding our pipeline in new cell types could offer powerful new options for countless patients and enable the promise of continued value growth.

4:44 Second, we are looking to advance multiple liver targeted programs into mid and late stage studies, including up to three potentially pivotal clinical trials. And third, we expect to continue to expand the reach of the TRMM platform and enable access to an important new cell type, skeletal muscle. It will mean a lot to our business if we are able to execute in these areas. By the end of the year, we could have 10 trim-enabled drug candidates in the clinic, eight of which could be wholly owned, targeting up to four different cell types with up to three candidates in potentially pivotal studies. Let those numbers sink in for a moment. I don't believe there is a company our size anywhere with this type of reach, and remember that this is all built on a single scalable platform. As you know, however, we are only getting started. I believe those 10 clinical candidates could double to 20 just a few years later.

5:34 This pipeline has a healthy mix of early, mid, and later stage candidates designed to address both small, well-defined, rare disease populations, as well as high prevalence diseases. This gives Arrowhead and our shareholders a couple key features. First, it provides diversification where risk is spread out across the portfolio. Second, and maybe more importantly, it enables a consistent flow of data readouts to help demonstrate that our candidates are on the right path. But 2020 and beyond is not just a pipeline expansion story for Arrowhead. We are also making an orderly transition from a discovery and early clinical stage company into a late stage clinical and emerging commercial organization backed by a powerful discovery engine. We want to build this out in a way that values speed and execution, but also in a way that is efficient and capital conscious.

6:19 We intend to partner strategically and selectively to manage risk, source capital to develop and commercialize wholly owned programs, and maximize patient access to our drugs worldwide. We will approach this phase in typical Arrowhead fashion with innovation in mind. This is a big opportunity and a big step for us as a growing platform pharmaceutical company. Let's now take a closer look at some of our progress during the last quarter and the period since our last earnings call and how this is preparing us for this next phase of growth. As I mentioned, we reported initial clinical results for our two wholly owned cardiometabolic candidates, AeroApoC3 and AeroAng3 at the American Heart Association Scientific Sessions and back-to-back plenary presentations. These results were from the single ascending dose portions of First in Human Studies.

7:05 They demonstrated robust, durable and dose-dependent reductions in ApoC3 and AngPTL3 proteins leading to impressive changes in triglycerides and various other lipid parameters. This is an important accomplishment by virtue of the quality of the data, the remarkable durability of the effects shown and the power of the targets. We are now treating patients in the multiple dose portion of these studies and, while they are still ongoing, I can give you an idea of what we are seeing. In addition, Bruce will provide a bit more detail when he speaks. At a 50 milligram dose of AeroApoC3, we are seeing reductions of around 95% in circulating triglycerides in patients with severe hypertriglyceridemia. This is, quite frankly, astonishing. To put this into perspective, one patient started the study with 4,818 milligrams per deciliter of triglycerides, and this fell to just 231 just 29 days after the first dose of AeroApoC3.

8:03 In fact, the mean absolute reduction for the three patients with at least 29 days of data in this cohort was minus 3,183 milligrams per deciliter. We would expect this type of reduction to have substantial clinical and quality of life impacts, particularly in patients with a history of pancreatitis. We are talking about patients with severe hypertriglyceridemia moving to relatively normal triglyceride levels extremely rapidly. This supports our plan to develop AeroApoC3 as a focused triglyceride-lowering drug, and we expect dosing to be every four months or potentially less frequent. While we believe this could be a powerful drug for patients with familial chylomicronemia syndrome, or FCS, we plan to develop this more broadly to also treat patients with polygenic hypertriglyceridemia and History of Pancreatitis.

8:53 This is still a rare indication, but KOLs tell us that the affected population is approximately 100-fold that of FCS, representing about 30,000 potential patients in the U.S. alone. We are also seeing promising data in the ongoing studies with AeroAng3. For instance, in patients who already are on statins but unable to reach their LDL cholesterol goal, we have seen a further reduction in LDL cholesterol of around 40% after short exposure to AeroAng3 and in patients with triglycerides greater than 300 milligrams per deciliter, we saw a 79% reduction in circulating triglycerides. One of the cohorts, Still Blinded, is also evaluating the effect of AeroAng3 on insulin sensitivity and liver fat. As with AeroApoC3, we expect dosing to be every four months or less frequent.

9:41 While we view AeroApoC3 as a rifle shot against severe symptomatic hypertriglyceridemia, we are developing AeroAng3 as a broader market drug where genetic studies indicate it could have a profound impact even in the age of statins and PCSK9 inhibitors. Because we expect it to hit multiple pathways in pathologies, we view this as a potentially important medicine against metabolic syndrome and dyslipidemias, fellow travelers in creating cardiovascular risk. AeroAns3 and AeroApoC3 appear to be powerful medicines indeed, and there still haven't been any reports of drug-related AEs rated as serious or severe, and no discontinuations due to drug. We expect to present data throughout 2020 at various scientific conferences as the studies read out.

10:27 These data are providing further clinical validation for the TRMM platform broadly and hepatocyte targeted programs specifically. We believe Arrowhead is achieving benchmark activity, durability and tolerability. So far, we have enjoyed very consistent and reliable translation of preclinical results in animals to Human Clinical Studies, and this speaks to the scalability and predictability of the platform. This gives us confidence as we move into the clinic with our latest hepatocyte targeted candidate, AeroHSD. We expect AeroHSD to be the first drug candidate of any modality targeting HSD17B13 to reach human testing. Published human genetic data indicate that a loss of function mutation in HSD17B13 provides strong protection against NASH, cirrhosis, and alcoholic hepatitis and cirrhosis with approximately 30% to 50% risk reduction compared to non-carriers.

11:20 This target has generated a great deal of unsolicited inbound interest from multiple potential partners. In December, we filed a CTA for this program and I'm happy to report that we now have regulatory and IRB approval to begin clinical studies. I expect the dosing will begin this quarter and it is possible that we could have some data by the end of the year. I would now like to talk about what to expect with the Arrow AAT program. We are enrolling patients and continue to activate sites in North America and Europe in the potentially pivotal Sequoia study. That is a blinded placebo-controlled study in which the last patient is to receive approximately two years of treatment. Because of this, it will be some time before there are any data to share, but we believe that Sequoia's structure provides us with the fastest possible path to registration.

12:07 Last month we began dosing AeroAAT 2002, an open label phase two study with liver biopsies at baseline and after six months, 12 months, 18 months, and 24 months of treatment. The first cohort is fully enrolled, so we expect to have the first six month repeat biopsy data by fall, and we hope to share at least some aspects of those data publicly by the end of the year. As we've discussed extensively in the past, we believe that for RNAi to truly transform medicine, It needs to be applied in tissues outside the liver. We made important progress over the past months, and as I stated earlier, we see 2020 as the year we establish clinical proof of concept for trim-enabled RNAi beyond hepatocytes.

12:52 In December, we filed an IND for ArrowHIF-2, our first tumor-targeted candidate against renal cell carcinoma. HIF-2-alpha is a well-validated target for the clear cell form of RCC. So we are very excited about AeroHIF-2 and what it can mean for patients. The delivery technology we are employing is designed to get into other solid tumors as well, rather than specifically RCC. As such, establishing clinical proof of concept that we are silencing HIF-2-alpha in the current study could represent an important value inflection point. It could mean that we have a potentially important drug for RCC and a platform that can be used against numerous targets across multiple solid tumor types. Once we achieve clinical proof of concept, our model is to rapidly expand our pipeline with additional candidates focused on new tumors against a variety of oncology targets, some of which may be heretofore undruggable.

13:44 This is a potentially powerful and scalable model. So then the question is, when we could achieve clinical proof of concept? I believe this answer is as early as this year. I'm happy to report that we now have clearance from the FDA to begin the Phase 1 study, and we hope to begin dosing patients this quarter. Let's now move to the lung. As you know, we have been developing our ability to deliver to pulmonary epithelial cells via inhalation for some time now, with an initial focus on silencing the pulmonary epithelial sodium channel, or ENAC, for the treatment of cystic fibrosis. Last quarter, we presented preclinical data at the North American Cystic Fibrosis Conference on AeroENAC. We remain on schedule for a CTA filing in the first half of 2020 for this candidate.

14:30 As with AeroHIF-2, We view establishing clinical proof of concept as a potentially important value inflection point. ENAC is a well-validated CF target that has been undruggable due to systemic toxicity, so we believe positive data would be a big step for CF patients with potentially any genotype. More broadly, it could serve as an important validation for our pulmonary delivery system. Once we have data demonstrating the relationship of how animal data translate to humans, we will be aggressive in pipeline expansion. There are a large number of potential opportunities in such areas as COPD, asthma, pulmonary fibrosis, and others. We are clearly creating a lot of value with our hepatocyte-directed TRMM platform, and we believe we can do the same with solid tumor and lung-directed TRMM platforms. Needless to say, everything I have described will take a tremendous amount of creative and highly integrated work. For instance, during the remaining 11 months of 2020, we hope to have up to three end-of-Phase II meetings with FDA and EMA for Arrow AAT, AeroAng3, and AeroApoC3, file two to three new CTAs, have clinical data readouts across most of our existing clinical programs, create our first program targeting skeletal muscle cells, continue working on next-generation undisclosed programs, and start to build out a pre-commercial infrastructure.

15:50 Toward these ends, we expanded our senior management team with the hiring of seasoned biotech and pharma leaders, Dr. Javier San Martin as chief medical officer, Dr. Kurt Bradshaw as Chief Scientific Officer and Jim Hazard as Chief Commercial Officer. These additions have already been impactful to Arrowhead and give us confidence that we can maintain our innovative culture as we continue to grow. We wanted leaders with proven track records of running effective discovery, development, and commercial programs in rare and high prevalence disease areas. Together, they have been responsible for dozens of INDs, small and large clinical studies, NDAs, commercial launches, and product marketing campaigns. Kurt joined us from Toll9, a company he co-founded to develop novel antibody conjugates for immuno-oncology.

16:35 Prior to that, he was with Solstice Biologics, Traversa Therapeutics, Covix Research, Ligand Pharmaceuticals, and Abbott Laboratories. Javier joined us from Ultragenyx, where he was Senior Vice President and Head of Global Clinical Development. Prior to that, he held clinical development roles at Alder Biopharmaceuticals, Amgen, and Eli Lilly, after beginning his career at CMIC University Hospital in Buenos Aires as attending physician in internal medicine. Jim joined us from Coharis Biosciences, where he was Senior Vice President of Marketing and Market Access. Prior to that, he was with Medivation, Amgen, and Shearing Plow. We also appointed Dr. Marianne DeBacher as a new independent director. She is currently Executive Vice President, Head of Global Business Development and Licensing, and a member of the Executive Committee of the Pharmaceuticals Division of Bayer AG.

17:24 We got to know Dr. DeBacker when she was Global Head of Business Development at Janssen and we were negotiating our partnership with them. Her passion for finding new innovative medicines for patients, broad technical background, and deep experience in hundreds of transactions make her a great fit as part of our board of directors. Of course, in addition to great talent, our work requires capital. Toward that end, we improved our balance sheet and extended our cash runway with the financing last quarter with gross proceeds of approximately $267 million. Clearly, there's a lot going on at Arrowhead, and we had another quarter of impressive execution. Even after much progress made in 2018 and 2019, we feel that we are still in the very early stages of growth for our company and for the RNAi Therapeutics field broadly. We view Arrowhead as a clear leader in the field, and we intend to keep our foot on the gas to maintain that position.

18:13 With that overview, I'd now like to turn the call over to Dr. Bruce Given. Bruce?

18:18 Thank you, Chris. Good afternoon, everyone. I'll give a quick update on the status of our clinical development programs. Let's start with AeroAAT, our second-generation investigational RNAi therapeutic being developed as a treatment for the rare genetic liver disease associated with alpha-1A trypsin deficiency. We are currently conducting two clinical studies, Sequoia, which is an adaptive design, potentially pivotal Phase 2-3 study, and AeroAAT-2002, which is a pilot open-label Phase II study to assess changes in a novel AATD histological activity scale. For Sequoia, we intend to open around 40 sites in the US, Canada, and Europe.

19:05 To review, Sequoia is designed to enroll 120 patients, with the last patient enrolled receiving approximately two years of treatment. The primary endpoint is the proportion of AeroAAT-treated patients relative to placebo achieving a two-point improvement in a histologic grading scale of AATD liver disease and no worsening of liver fibrosis on end-of-study biopsy. We are also moving forward quickly with AeroAAT-2002. The 2002 study is designed to enroll approximately 12 participants in two sequential cohorts. Between the two cohorts, biopsy data will be assessed at baseline and after 6, 12, 18, and 24 months of treatment with Arrow AAT.

19:55 We have fully enrolled the first sequential cohort, and all patients have received at least their first dose. The second sequential cohort is also moving quickly. We anticipate that it will be fully enrolled this quarter. This will allow us to collect the first repeat biopsy at the six-month time point around the middle of this year. This is important because it may be the first view of what happens inside the liver in AATD patients after a therapeutic intervention using any modality. We are eager to see how ZAAT monomer production is affected and whether the accumulated ZAAT polymer can start to clear. AAT is a very attractive target for an RNAi-based intervention because it is primarily produced in the liver and the misfolding of the mutant ZAAT protein is clearly the cause of the progressive liver disease in these patients.

20:56 We believe that dramatically reducing the liver production is likely to halt the progression of liver disease and may allow regression of existing liver pathology. It's also important to point out that we have previously presented clinical data showing that arrow AAT treatment led to reductions in serum AAT levels to below the level of quantitation with a multi-month duration of effect. This indicates that we may be achieving near complete suppression of the liver production. We think for patients that are already on their way to progressive liver disease that the intervention that achieves this high level of activity has the best chance of showing a clinical benefit. In my mind, any approach that doesn't seek to get full suppression of the mutant protein may leave patients with existing liver disease at high ongoing risk.

21:51 Press releases and presentation materials on AeroAAT are available on our website if anybody wants a refresher. Now let's turn to our two cardiometabolic candidates, AeroApoC3 and AeroAng3. We presented data on both candidates at the American Heart Association Scientific Sessions in November. These were single-dose data from the ongoing First in Human Studies. We are in the process of generating multiple-dose data in various patient populations for both candidates, which we intend to share publicly at various venues this year. Let's talk about the status of these studies in more detail and how we're thinking about the development programs moving forward.

22:38 I'll start with AeroApoC3, our RNAi therapeutic candidate targeting apolipoprotein C3 being developed as a potential treatment for patients with hypertriglyceridemia. We view this as having the most applicability to rare disease populations. Specifically, patients with severe hypertriglyceridemia with a history or at a high risk of pancreatitis. Some of these patients have a single genetic cause for their disease, such as familial chylomicronemia syndrome, or FCS. But a significantly larger population has polygenic causes for their hypertriglyceridemia. Whether it is monogenic or polygenic, their disease has very similar clinical manifestations.

23:28 So we are exploring various trial designs for what a pivotal study would look like. We intend to have discussions with the FDA and EMA this year and hopefully gain clarity on some key study design considerations. The current clinical study is called AeroApoC3-1001. It is a phase 1 slash 2A single and multiple dose study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamic effects of AeroApoC3. The single-dose portion of this study is in healthy volunteers, and the multiple-dose portion includes patients with both severe hypertriglyceridemia and familial chylomicronemia syndrome.

24:15 As I mentioned, we presented single-dose data at AHA. We are now enrolling and dosing the multi-dose portion of the study in two primary patient populations. There are four cohorts of patients with elevated triglycerides above 300 milligrams per deciliter to give a detailed view of dose response in a patient population. One of the four cohorts has been enrolled and dosed and we are working on completing the other three cohorts. To accelerate completion of these cohorts we are now opening Canadian centers where there is a very important founder population. There is also one cohort of patients with severe hypertriglyceridemia above 880 milligrams per deciliter.

25:01 This is the patient population I discussed earlier where they may be monogenic such as FCS or polygenic. This cohort has five patients enrolled, three of which are through at least their first month of therapy. Let me give you a flavor of what we are seeing. These three patients have starting triglycerides in the thousands. and responded to 50 milligrams of AeroApoC3 with a mean maximum 97% reduction in ApoC3. This has resulted in a mean maximum reduction in triglycerides of 95% with an absolute mean fall greater than 3,000 milligrams per deciliter.

25:46 We look forward to the opportunity to present these data at a medical meeting this year. Now let's turn to AeroAng3. are RNAI therapeutic targeting angiopoietin-like protein 3, or AngPTL3, being developed as a potential treatment for patients with dyslipidemias and possibly metabolic diseases. The current study is called AeroAng1001. It is a phase 1 slash 2A single and multiple dose study to evaluate safety tolerability pharmacokinetic and pharmacodynamic effects. The single dose portion of the study is in adult healthy volunteers. The single dose data was presented at AHA in November and received a good amount of attention.

26:32 We are now conducting the multiple dose portion, which includes patients with various types of dyslipidemia, including patients on a stable statin regimen with persistently elevated LDL cholesterol, patients with heterozygous or homozygous familial hypercholesterolemia, patients with hypertriglyceridemia, and patients with non-alcoholic fatty liver disease. The familial hypercholesterolemia cohorts are almost at full enrollment, and all of the other cohorts are already fully enrolled. To give a sampling of patient data here, at doses of two or 300 milligrams, mean maximum percent reductions in angPTL3 approach 90%.

27:18 Mean maximum triglyceride reductions in the high triglyceride cohort approach 80%, and mean maximum reductions in LDL cholesterol in the various LDL cohorts are averaging around 40%. It is important to note that most of the patients in these cohorts are already on maximal medical care consisting of statins, plus or minus ezetimide, with PCSK9 inhibitors in some. This study will yield data throughout the year. and we intend to provide various data readouts at different academic venues. From a safety and tolerability perspective, both Arrow ANG3 and Arrow ApoC3 continue to look similar to our other TRIM candidates with the most common AEs being headache, respiratory tract infections and injection site reactions without drug-related discontinuations.

28:15 We feel very good about the data generated to date and are eager to share additional data The unique challenge for Arrowhead concerning data release is that trim-enabled RNAi therapeutics have such long duration. Two doses tend to give us six months or more of activity, so follow-up times are much longer than for small molecule drugs or monoclonal antibodies. It's a good problem to have because that duration gives our RNAi candidates a very attractive product profile. But it does make data release and abstract writing, for instance, challenging. I now want to give a brief update on where we are with our newest clinical candidates. Arrow HIF-2 is our candidate against the target HIF-2-alpha being developed to treat clear cell renal cell carcinoma.

29:08 We filed an IND in December to start a Phase I dose range finding study in up to 18 clear cell RCC patients, that have been refractory to VEGF-targeted or checkpoint inhibitor therapy. The primary objectives of this study will be determination of a Phase II dose and safety. Secondary objectives will include pharmacokinetics and then efficacy based on resist criteria using either CT or MRI imaging. A key exploratory objective for ArrowHIF-2 will be gene target knockdown in the tumors using tumor biopsy. The IND was activated within the normal 30-day clock, and we are in the process of initiating sites.

29:55 Our goal is to have the first patient dosed around the end of the first quarter. Arrow HSD is our new investigational candidate targeting HSD17B13 for the potential treatment of alcohol and or non-alcohol related liver disease. Published GWAS data have indicated that loss of function mutations in the HST17B13 enzyme provide the strongest known genetic protection against NASH cirrhosis and alcoholic hepatitis and cirrhosis. It has also generated a considerable amount of unsolicited inbound interest from large pharmas that are active in the NASH space.

30:40 In our view, it is the most sought after target for NASH at the moment. We filed a CTA in December to begin a phase 1 slash 2A single and multiple dose escalating study to evaluate safety, tolerability, pharmacokinetics, and pharmacodynamic effects of aero HSD in normal healthy volunteers as well as in patients with NASH or suspected NASH. Additional exploratory objectives include assessment of various measures of drug activity using liver biopsy. We now have regulatory and IRB clearance, and we are working to dose our first normal volunteers this quarter. As with AAT, HBV, ApoC3, and AgPTL3, we are once again the first RNAi company in the clinic against a very exciting target.

31:35 With that brief review of our clinical programs, I'd like to turn the call over to Ken Biskowski, Arrowhead's Chief Financial Officer. Ken?

31:44 Thank you, Bruce, and good afternoon, everyone. As we reported today, our net loss for the quarter ended December 31, 2019, was $2.7 million, or $0.03 per share, based on 97.1 million weighted average shares outstanding. This compares with net income of $12 million, or $0.13 per share, based on 95.6 million fully diluted weighted average shares outstanding for the quarter ended December 31, 2018. Revenue for the quarter ended December 31, 2019 was $29.5 million compared to $34.7 million for the quarter ended December 31, 2018. Revenue in both periods relates to the recognition of a portion of the upfront payments and milestones received from our license and collaboration agreements with Janssen as we continue to work toward completing our performance obligation of managing the current Phase 1-2 HPV clinical trial.

32:44 Revenue from the Janssen Agreement is recognized based on our estimate of the proportion of effort expended toward fulfilling our performance obligations, primarily overseeing the completion of the current Phase 1-2 HPV clinical trial. We expect the remaining $54 million of deferred revenue to be recognized in this calendar year. Any additional milestones achieved with Janssen or Amgen would be additive to this projection. Total operating expenses for the quarter ended December 31, 2019 were $34.3 million compared to $23.7 million for the quarter ended December 31, 2018. This increase is primarily due to increased clinical trial and toxicology costs as our pipeline of clinical candidates has increased.

33:33 Increased personnel cost in both R&D and G&A also drove the increase as our headcount continues to grow. Net cash used by operating activities during the quarter ended December 31, 2019 was $23.5 million, compared with net cash generated by operating activities of $168.3 million during the quarter ended December 31, 2018. The key driver of this change was the $175 million upfront payment from Janssen last year. We estimate our near-term cash burn to average $25 to $30 million per quarter. Turning to our balance sheet, our cash and investments totaled $528.3 million at December 31, 2019, compared to $302.9 million at September 30, 2019.

34:25 The increase in our cash and investments was primarily due to the December 2019 equity financing we completed, which generated $250.5 million in net cash proceeds for the company. Our common share is outstanding at December 31, 2019, 2019 were 101.1 million. With that brief overview, I will now turn the call back to Chris.

34:49 Thanks, Ken. I've talked in the past about this being the beginning of a golden age for RNAi as a therapeutic modality. I believe this. I also see Arrowhead continuing to push the RNAi field forward and developing many important and differentiated medicines that help countless patients without adequate treatment options. This is what drives us every day and keeps us focused on our long-term goals. We are doing something very important in a way that no other company, even in the RNAI field, has been able to match. Our drive toward innovation and finding a way, even when the way is not clear, is a hallmark of the Arrowhead culture. 2020 is another opportunity for us to demonstrate that. We believed we could achieve great things in 2018, and we did. We believed we could achieve great things in 2019, and we did.

35:36 We believe we will achieve great things in 2020, and here are some of our goals. to file two to three new CTAs, initiate two new potentially pivotal studies with AeroApoC3 and AeroAng3, move Sequoia into the pivotal portion of that study, initiate our first pulmonary clinical study with AeroEnac, establish clinical proof of concept for lung delivery, establish clinical proof of concept for solid tumor delivery, generate our first clinical candidate targeting skeletal muscle, share clinical data throughout the year from the following programs, AeroApoC3, AeroAng3, the AeroAAT2002 Open Label Study, AeroHIF2, AeroHSD, and AeroENAC.

36:24 We believe these are all substantial value drivers for us, and we are excited to go after them. Thanks again for joining us today, and I would now like to open the call to your questions. Operator? Thank you. Ladies and gentlemen, if you would like to ask a question at this time, please press star 1 on your telephone. To withdraw your question, please press the pound key. Once again, that is star 1 to ask a question. Our first question comes from the line of Edward Tenthoff with Piper Sandler. Your line is open.

36:54 Great, thanks. Can you hear me okay? Yes. Hey, how are you guys? Congrats on all the progress. Really exciting to see As you guys continue to go deeper and further into the clinic, question on alpha-1 antitrypsin. I'm curious if with the competitive programs, both small molecule and other RNAIs, whether you're having any trouble finding patients and whether you're seeing that impact registration at all. Maybe you can just kind of lay out how you see the Thanks so much. Bruce, you want to take that?

37:37 Yeah, thanks, Ted. I don't know that we've seen that really showing up yet in our space. I think with respect to the other RNAIs, you know, they're just in Phase I, and so they don't have a very broad, you know, footprint at all, I would say. So at this point, I don't really – See them as creating any meaningful issue for us. We certainly haven't perceived that. With respect to the oral, I think there's a lot of confusion on the street about that. I don't think that there's really a whole lot of confusion, at least yet in the investigator community that I can see. We don't think it's actually going to be a competitive mechanism because we Thank you very much.

38:45 for instance, that you really need to remove the insult to allow the livers to heal. That's our belief. So we think a partial improvement in the amount of monomer in the liver is unlikely to allow livers to heal over any sort of reasonable period of time. Maybe over a period of five or ten years, an approach like that could be helpful, but we don't see it in a meaningful clinical trial setting being a very competitive therapy. So we don't really see the orals as likely to, in the end, from a clinical trials perspective, be very successful. But we do recognize that there's a lot of noise out there and a lot of confusion, and I guess it's incumbent upon us to try to help clear up that confusion.

39:40 And just to put a finer point on that clearance issue,

39:44 Look, the alpha-1 encryption is thought to be the second most abundant protein in the body. It's thought that the liver is making about two grams of this a day. And so it will take an awful lot of corrector to move that out of the liver. We know from our data that we are probably silencing that almost completely within the liver.

40:09 Okay, cool. Awesome. Thank you so much, Kurt. Thanks, Ted. Thank you. And our next question comes from the line of Alicia Young with Cantor Fitzgerald. Your line is now open.

40:22 Hey, guys. Thanks for taking my question. Congrats on the progress with the cardiomyophobe platform. Maybe a couple for me. One, I was intrigued by your HSD commentary and the partnership interest. I was just curious if this is an asset that you might think about kind of commercializing a little bit further, or is it something that you would think about kind of potentially partnering earlier? and then I had another question on you were talking to potential non-liver catalysts on data. I just want to make sure I had it right for my own purposes that we could get some data on HSD and which one was the other one? Not ENAC, right? And I think we had... HIF-2. HIF-2, right. So you have HIF-2. So that's the second question. And the third question is I just want to talk a little bit more about kind of ENAC in general. Do you guys, I mean, maybe talk a little bit why, you know, like Vertex obviously studied it, you know, in the past, and why do you think RNA is a superior approach there as well, Tix?

41:21 Okay, so let's start with the HSD partner or no partner. So we're in a good spot here. You know, we've got plenty of capital. We've got, you know, good experience running, you know, early to mid-stage clinical programs, and we've got a good track record of success. of conducting those rapidly. So there's no pressure on us to partner that anytime soon and we are happy to move into the clinic on our own on that. Having said that, as with all of our other programs, we are happy to look at the landscape and make a good decision about partner versus no partner. As we've talked about in the past, look, we've got the embarrassment of riches here in that we've got a machine that will churn out clinical candidates quite quickly and no company, much less a company our size. But I don't think any company could commercialize all of the potential drug candidates or potential drugs that we're going to be creating.

42:17 And so there will be partnering going forward, absolutely. The question is which one of these assets we're going to partner and when we're going to partner and how we're going to partner it. So we are certainly open over time to partnering some of our programs. We just don't know. At this point, it's not clear when or if we would partner HSD. We'll just keep our eyes open on that one. We're excited to start dosing that study shortly. As I mentioned, we've got clearance to move forward, and so my expectation is that we'll start dosing that this quarter. And now to merge into your second question about data. Look, it's probably a bit too early to guide to data release this year. We talked about some goals, and it is certainly our goal to have data in our hands from HSD, from ENAC even, and from HIF-2-alpha.

43:09 Are those data mature enough to present publicly? We'll just have to see. And we'll certainly guide when we are in the clinic long enough and we have a good idea about how much data we're going to have by the end of the year. But we certainly feel good that we're going to have data internally for all those programs by the end of the year. And again, we'll just see how much we can share by the end of the year. We are certainly motivated to get it out as quickly as we can, we'll put it that way. And regarding ENAC and and prior failures there. Bruce, do you want to talk about the biology of that?

43:43 Yeah, no, that's great. You know, so Lithia, this has been a pharma target for a long time. And, you know, people have been trying to develop small molecule ENAC inhibitors. They have been able to develop small molecule ENAC inhibitors. They're It's not been that difficult to come up with small molecules that can do it. The problem has been that ENAC is also very, very important in the distal tubule of the kidney, and it controls potassium in the blood. So the goal was always to try to figure out some way to keep the small molecule inhibitor in the lung and keep it out of the bloodstream.

44:34 And in so doing, try to get the benefits of ENAC inhibition in the lung without creating hyperkalemia, which is potentially fatal. And every single effort so far has failed. And you'll remember that Perion developed an inhaled ENAC inhibitor that GSK licensed and gave up on and failed, gave it back to Perion, and Vertex wrote a big check and bought it again and took it into the clinic, and they also failed. So, you know, which also, by the way, there's been a little bit of dialogue of why do you need ENAC inhibitors in the age of correctors, and I would just remind everybody that that even Vertex thought that this was a very important mechanism to have their hands on.

45:27 Even after it had failed in GSK's hands, they wrote a big check to go and fail again with it. So the small molecule inhaled inhibitors have all failed because you just can't keep them out of the bloodstream. Well, so why is RNAi the right approach? because RNAi does not passively cross cell membranes. The only way you get it into a cell is with ligand-mediated delivery. So we are using a ligand-receptor combination that doesn't exist in the liver. And for that reason, even though some of ours gets into the bloodstream, it doesn't get into the distal tubules.

46:14 and we've never been able to, no matter how much we poured in to animals, we've never been able to get any knockdown in the kidney and nor do we expect any. So that's what makes it so perfect for RNAi, not to mention the fact that these CF patients are having to nebulize multiple times on a daily basis The thought of having an effective agent that they could nebulize once every few weeks, one time every few weeks or something like that, or even if it was a couple, three days, and then they didn't have to do it for another few weeks or a month, that's also, just from a patient convenience and benefit perspective, is great as well.

47:00 But the big advantage for ENAC will be that the therapeutic index around this This is probably the only practical way to successfully go after this particular target. Awesome. Thanks for the color, guys. Keep up the good work. You bet. Thank you, and our next question comes from Maury Raycroft with Jefferies. Your line is open.

47:40 Hey, everyone. Congrats on the progress, and thanks for taking my questions. To start, so the data that we're looking at in the press release for ANZ3 and APOC3, that's all single-dose data, right?

47:55 Maury, actually, you know, some of that data is from the first dose, and some would be after the second dose. Remember, we're dosing on day one and then four weeks later, just thinking that that's probably going to give us a maximal knockdown. And then we'll follow that out to understand what our true duration is going to be in chronic dosing. So some of this data is just from the first of those two doses, and some may be in that second dose where We're in the active follow-up phase. So this is just a first look.

48:34 Got it. So it's somewhat of a hodgepodge of data. And then I guess, will you provide more details on this at ACC? And then what other details do you plan on providing at the ACC meeting coming up?

48:50 So it's not clear. We will not be providing more data at ACC on these. We do expect to provide complete data sets throughout the year at various conferences. We'll just see when the data are mature and how that corresponds with various conferences. ACC, it looks like, is just going to be a bit too early for mature data for these programs.

49:15 Got it. Okay. And then... I know we don't have a whole lot of details from the Ionis Exia Ang3 program, the top line recently. I guess, what are your views on their lack of liver fat or A1C changes? And did you learn anything strategically from their top line update that you can potentially incorporate into your program that could increase chances of detecting liver fat reduction and or metabolic changes?

49:41 Yeah, look, so we didn't learn anything from that because we haven't seen the data. We'll just have to wait and see what that looks like when they actually provide data. But I will say, broadly speaking, we feel that when you can use RNAi, it is, as a class, a potentially more powerful tool than antisense oligos. We feel strongly that we should have generally a better safety profile than antisense. We feel like we should have a better dosing schedule than AnySense. And then we'll see what the activity looks like with AnySense versus RNAi. So far, we look at least competitive and maybe sometimes better.

50:23 Got it. Okay. And then for the NAFLD patient cohort, are you only dosing those patients twice, so once per month, and then you unblind them? Or how many months can you dose them?

50:37 Right. So it's two doses. You know, the first dose and then a second dose 28 days later. But we're doing MRI, PDFF, I think on day 71. And then a second on day, I'm looking at Javier here, 169? 168, yeah. 168, yeah, 168,169. So, you know, that, which just attests again to the, you know, incredible durability of RNAi. So, you know, we'll have two shots to, you know, to take a look here at MRI, PDFF, liver fat.

51:19 Got it. And last question is just for the patients in the press release. If you can say whether you're seeing a dose response for ANG3 and is the 50-meg dose for APOC3, is that likely the go-forward dose that you're going to use?

51:36 I think we're, you know... 50 is certainly a good dose. Whether in the end it could wind up being as low as 25, we'll have to wait and see. I think at this point, we don't have our full dose response data for ApoC3 yet. For NHPTL3, we have more dose response data. And I think it's fair to say we're probably seeing a dose response for NHPTL3 levels I don't really think we're seeing a dose response for other parameters as best I could tell at this point. But I would say that we obviously had enough data that we felt very comfortable doing this preliminary release.

52:26 I don't feel like we have the fullness of the data for full depth and duration and full dose response and where dose response may really show up may be in duration, not so much in maximum depth, for instance. So we have more to learn here, all of which is gonna be really interesting and I think fun, but what we have already we thought was frankly of sufficient importance that we should go ahead and top line a few of the key features today just because it really was so impressive. Kind of felt wrong to sit on it.

53:08 Got it. That makes sense. Congrats again, and thanks for taking my question. Thanks, Mark. Thank you. And our next question comes from the line of Mayonic Mamhtani with B. Riley FVR. Your line is open.

53:23 Thanks for taking my question, and congrats team on a productive quarter. And great to have Jim, Javier, and Kurt joining the team. Quick one for Bruce. On AAT, on this end of Phase 2 meeting in fall, could you maybe talk about the efficacy from a six-month readout and also from a lung safety standpoint, what are some of the considerations you may have from a data review with the agency standpoint?

53:50 Well, you know, so I think we'll be wanting to hold that meeting after the The Part A is complete and we've got the 36 subjects and the DSMB has selected a dose. At that point, for us, we'll be blinded, but we'll at least have data on any serious AEs, for instance, whether we're seeing any sort of pulmonary issues. And the FDA will have The Unblinded Data. So they'll actually have data we don't have. But I think it's an opportunity then to check in with them, see how they're feeling at that point, and also to discuss other elements of the program potentially beyond just Sequoia.

54:49 We do have some other ideas of other things that we think would be potentially valuable to discuss with them at that point. But presumably, the DSMB will have chosen the final dose that's going to be used in Part B, and the FDA will have been comfortable with that. And that's a good time, I think, to sit down with them and make sure that we've sorted through everything else that they might want in an NDA.

55:27 Okay, great. And then on the HIF-2, can you remind the dosing and duration that you're pursuing and maybe the frequency of scans you're doing in that cohort?

55:43 Oh, boy. 13.5 weekly. Weekly, right. IV, of course. Yeah. And what about frequency of scans? I want to say it's like every six weeks or something, isn't it? Every six weeks, yeah. Yeah, so the scans are every six weeks, and the frequency of dosing is initially weekly at least. There are provisions and thoughts in there that depending on what we see, we may stretch that to less frequent dosing. It's cancer, so we just want to be sure to the extent that there's any cell division going on that we're having a chance to hit those We certainly expect duration longer than that in the cells that have been dosed, but given proliferation in cancer, we're at least starting out with weekly dosing.

56:36 We have to buy out these doses.

56:40 Great. Just one final one on HSD, and maybe could you talk in context of alcoholic liver disease? Obviously, I mean, Nash, there's a lot to go around for the strategics. Could you maybe talk how the inbound interest is from an alcoholic hepatitis standpoint, which, again, can be fatal and very costly to the system, too?

57:02 Yeah, thanks, and that's an interesting question. It's certainly an interesting set of patients to go after, and the GWAS data are at least as compelling in those groups as they are for NASH, potentially even more compelling. So I appreciate your bringing up that patient group. It's one that we are thinking about, certainly. Beyond that, I really don't want to get into any discussion about what companies may or may not be interested in. It's still early days, and as I mentioned, we are not actively looking to partner that at this point. The take-home message there is that we think it's a very compelling opportunity. and we are the first ones of any modality in the clinic against that target and so I think we've got a pretty interesting asset.

57:50 At some point it may be right to a partner but at this point we're happy to go ahead and start those studies.

57:56 Yeah and the key thing we're trying to learn in this study is depth and duration and of course dose for patients and we don't really have any reason to believe that any of those would be different in a NASH Thank you very much. in alcohol. So that decision of NASH versus alcohol doesn't have to be made now. We just thought this was the best population to do this study in.

58:45 Got it. Thanks for taking my questions.

58:48 Sure. Thank you. Thank you. Our next question comes from Esther Rajavelu with Oppenheimer. Your line is open.

58:58 Thanks for squeezing me in, guys. Bruce, can you quickly share any information you have on the respiratory tract infections in the two studies that you press released? And for the ANG3 study, have you seen any liver tox signals? I think there was a case of an ALT elevation in the healthy volunteer portion.

59:17 So let me take the second one first. I don't think we are perceiving that we have a liver signal. We see transaminase increases in normal volunteers. We see it in placebo. We see it in active. It's a chronic problem in the industry because normal volunteers tend to occasionally have Exciting Weekend, and they could come in with a pop in their transaminases. But we have not perceived a signal at this point, I would say, with any of our drugs that we're concerned about is a drug-related signal.

1:00:10 So nothing that's worrisome yet. That doesn't mean, of course, that once you have a database, an NDA database of 1,000 or more patients that something may not show up that gets your attention. But so far, we're not perceiving that we have an LFT issue. Now, could you be a little more specific on your question about infections? Are you talking about in the AAT patient population? Can you be a little more specific about your question?

1:00:41 Yeah, the ARO-NG3 and the APOP3, the press release indicates sort of... Oh, you're talking about the upper respiratory tract infections? Yep.

1:00:52 Look, I think that those are probably going to turn out to be no different than placebo. So in any clinical trial, your most common adverse effects in placebo patients tend to be headaches and respiratory infections. And this has been true in all of our clinical studies, that it's always been that way. And so far, they've never differentiated from placebo when the studies were unblinded. But in a fair balance way, we're saying what the most commonly reported AEs are that we've seen. But we don't know yet whether it's any different from placebo or not. And if I were a betting man, I would bet that the upper respiratory tract infections would be the same between placebo and drug. But I can't say that with certainty at this point.

1:01:43 And then in terms of the data readout and the maturing of the data, can you maybe just kind of help us be a little bit more specific on the timing? I mean, are you waiting for these particular set of patients, or are you kind of planning to dose more patients before you can release the data? Is it first half, second half?

1:02:05 No, so we wrote an abstract for ACC, but that abstract was written like a week after or two weeks after the AHA, and at that point, we had very little. Here now, we're two months later, and we have quite a bit more data, so we had enough that we could do this, and we could certainly now write abstracts for future meetings, and we like to present our data at academic meetings, as you know. That has been our tendency generally, you know, unless we are sort of in a situation like we are now where we have really interesting data but we kind of don't have a forum in which to present it in the near term. But I think, you know, there are meetings that come up, you know, in summertime and, you know, late summer and in the fall and, You know, we could certainly write very interesting abstracts right now and will be, but we kind of got caught here in the middle.

1:03:12 And the abstract that we wrote, you know, the late breaker we wrote for ACC, we knew was going to be pretty borderline because we just had so little patient data at that time.

1:03:28 Gotcha. Okay. And then maybe one for Ken. Can you talk about how we should be thinking about APEC, specifically R&D spend over the course of the year with some of these CTAs and Phase 1s getting started?

1:03:44 Sure. So our R&D spend for this quarter was $23.4 million. About $21 million of that was kind of cash expenses, excluding our R&D, depreciation, and stock comp. You will see that increase throughout the year. And if you look at our cash burn, we're looking at, let's say, 25 to 30 million per quarter.

1:04:14 And that's sort of a steady state as you're thinking about the course of the year for the rest of the year?

1:04:21 Yeah, we'll see that increase a little bit, but we think it's going to stay in that range for the rest of this fiscal year. All right. Thank you. Thank you. Thank you. And our following question comes from the line of Kiai Nakai with Chardon. Your line is open.

1:04:40 Yeah. Just with respect to HSD, Can you now tell us a little bit more about the protocol for the NASH patients and maybe specifically the timing of the biopsies?

1:04:54 Bruce? I'm sorry. So the timing of the biopsies, we have an early biopsy that's around, I'm looking at Javier here, that's around six weeks. And then we have the second, and then a different cohort that has a later biopsy that I want to say, is what, around 12 weeks or so? Do you remember exactly? Yeah, I'm sorry. It should be on our clintrials.gov, I think. It's not. But anyway, we're trying to look at depth around when we think would be peak effect, which is usually around six weeks, and then duration where we're stretching out closer to three to four months to get a sense of duration. but it's a challenge, of course, because we can't do multiple biopsies the way we can do multiple blood tests for other things.

1:05:53 Okay, and I think you've clarified this now with the comments, Bruce, but the reason for the early glimpse of the data from ANG3 and APL-C3 in the press release was because you weren't going to have anything you're going to be able to present at ACC and you're not certain of when When the next scientific meeting, will you have some data to present it?

1:06:15 Yeah, I suspect, you know, that, you know, we'll have an opportunity around mid-year would be my guess. You know, it would be, you know, when we're likely to do it. If there's an opportunity earlier, I'm sure we would, you know, just because there's already, I think, pretty interesting data, you know, to show. But But the next set of cardiology slash lipid meetings that at least are on our radar screen right now show up around the middle of the year.

1:06:51 Yeah, and your interpretation is right. As Bruce mentioned, we just didn't have very much data by the deadline of the abstract submission for late breakers for ACC. And so now we're sort of in this no man's land for the next several months, and we're sitting on some very exciting data. So it made sense to give you a flavor for it so you could see that these drug candidates are working at least as well as we expected, and frankly, a bit better than we expected. And then you'll have a fuller data set later in the year.

1:07:25 Okay, very good. Thank you.

1:07:27 Yeah, frankly, that APOC3 data kind of blew us away. Yeah, it's shocking, right? Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back to Chris Anzalone.

1:07:41 Well, thank you very much, everyone, for joining us today. We look forward to seeing you next quarter. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.