Arrowhead Pharmaceuticals (NASDAQ:ARWR) Q3 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.

0:26 Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its fiscal third quarter, ended June 30, 2020. With us today for management are President and CEO, Dr. Christopher Anzalone, who will provide an overview of the quarter, Dr. Javier San Martin, Chief Medical Officer, who will discuss our clinical programs, and Ken Muskowski, our Chief Financial Officer, who will give a review of the financials. In addition, James Hazard, our Chief Commercial Officer, and Dr. Kirk Bradshaw, our Chief Scientific Officer, will be available during the Q&A session of today's call. 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 27A 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.

1:39 These statements represent management's current expectations and are inherently uncertain. Thus, actual results may differ materially. 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 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'll turn the call over to Chris Anzalone, President and CEO of the company. Chris?

2:20 Thanks, Vince. Good afternoon, everyone, and thank you for joining us today. We've already made a lot of progress this year, notwithstanding the challenges that COVID-19 has presented to the world broadly, and particularly to those of us developing new medicines. We took decisive action and placed a voluntary pause on new patient screening and enrollment in some of our clinical studies in order to limit the risk of participants. We take very seriously our obligation to protect the health and safety of our employees, business partners, and patients that participate in our studies. That was the right thing to do. The good news is that we don't believe any of our development programs were affected in a material way. That is a testament to the Arrowhead drive toward innovation, speed, and precision. We find a way forward even when the way is not clear. This is a hallmark of the Arrowhead culture and something that I am very proud of. Even though COVID still presents some uncertainty, we are confident that 2020 can continue to be a highly productive last part of the year as we work to one, expand our pipeline, two, make progress and provide data readouts on multiple clinical programs, and three, gain clinical proof of concept for our first extra-hepatic candidates.

3:32 So what have we done and what are our plans in order to achieve these three important goals? Let's answer that by reviewing some key programs. I'll start by speaking broadly about our discovery stage programs. The partnership we signed with Janssen in 2018 included three potential new products against targets to be selected by Janssen. While I can't disclose the targets, the specific stage, or report data on these potential product candidates, we can say that we have made good progress on all three. We previously talked about Arrow J&J 1 because the first target was selected early on in the partnership and work began soon after. We are now at sufficiently advanced stage of the other two potential product candidates to add them to our pipeline and designate them as Aero J&J 2 and Aero J&J 3. The partnership with Janssen has been very productive, including for Aero HPV, now called J&J 3989, which continues to progress rapidly in multiple Phase IIb studies being conducted by Janssen. Staying with earlier stage developments, let's move on to our preclinical programs that utilize our TRIMM platform targeting the pulmonary space. Our second program, After AeroENAC is Aerolung2 designed to treat COPD by inhibiting an undisclosed target in pulmonary epithelia.

4:46 We previously announced that it had officially been nominated as a candidate and moved from preclinical to pre-IND stage. We have continued to make good progress on the IND-enabling studies and are on track to potentially file a CTA for Aerolung2 at the end of this year. It has been our goal to gain clinical proof of concept and then move into a rapid pipeline expansion phase for the pulmonary platform. We think we are just on the cusp of that phase now. To that end, we continue to work in parallel on multiple additional targets in the pulmonary space. We think the lung is a target-rich environment with multiple opportunities for asthma, COPD, idiopathic pulmonary fibrosis, and other diseases that are not adequately treated. We've also made good progress on several potential candidates designed to treat the novel coronavirus that causes COVID-19.

5:34 This is the first time we have disclosed that we are pursuing multiple different therapeutics at the same time, and I think it's important. This is a difficult virus, and we believe the best way forward is to address multiple strategies. One is to close the front door, if you will, by knocking down a receptor that the virus uses to gain entry into cells. A second is a direct antiviral approach that targets the viral mRNA and a third is to pursue anti-inflammatory pathways. We are pursuing all of these in parallel and believe this broad, holistic strategy gives us multiple shots on goal and a more complete approach to a poorly underscored virus. Given our experience in the lung and our work in HPV, I believe we are well positioned to play a role in addressing COVID-19 and possibly future coronavirus outbreaks.

6:24 With AeroENAC, AeroLung2, our suite of COVID-19 programs, and the additional potential candidates that are progressing rapidly, we are confident in our belief that the emerging lung pipeline can be an engine that drives substantial value in the near to midterm. What we have done and continue to do in the liver, we now seek to do in the lung. Now moving on to our clinical pipeline, I'll start with Arrow AAT, our Phase 2-3 candidates against a rare genetic liver disease associated with Alpha-1 antitrypsin deficiency. We have fully enrolled, dosed, and collected six-month repeat biopsies for the first cohort of the Open Label 2002 study. Biopsies are now being analyzed, and we plan to present data before the end of the year. This is important progress and an important readout.

7:10 It will be the first data for a therapeutic targeted at Alpha-1 liver disease, and it will be an important step in understanding what happens at the hepatocyte level after patients are treated. We will be looking at many measures of Alpha-1 liver disease but most focused on the change from baseline in ZAAT monomer. That is a direct measure of the drug's ability to inhibit production of the faulty mutant protein. We have a high level of confidence in our ability to show improvements here. We will also be assessing other measures that will likely require longer drug exposure to show treatment effect. That includes ZAAT polymer content and inflammation. We don't believe that six months of therapy is enough time to see changes but we are the first company to investigate the disease in humans, so we really don't know what to expect.

7:57 Remember that in the Phase 2-3 Sequoia study, patients will receive around two years of treatment. If we see signs of improvement at earlier time points than expected, that would be a very exciting result and could cause us to consider working with the regulators to change the parameters of the study. I will now talk about our cardiometabolic programs. Let's start with AMG 890, the candidate we licensed to Amgen targeting LP little a for the treatment of cardiovascular disease. We announced last week that Amgen started a phase two study and that this triggered a $20 million milestone payment. These represent important steps forward for the AMG 890 program and support Arrowhead's strategy of utilizing our platform and expertise in RNAi therapeutics to build a valuable pipeline of both wholly owned and partnered drug candidates.

8:43 Amgen has extensive experience in developing and commercializing innovative cardiovascular medicines and we are excited to see the program continue to advance. Our two wholly-owned cardiometabolic candidates, Arrow ApoC3 and Arrow ANZ3, are both progressing rapidly toward value inflection points, including multiple data readouts this year and advancement into the next stages of clinical development. The second half of 2020 is going to be an important time for both programs. Both candidates are in phase 1-2 studies and together have enrolled nearly 200 healthy volunteers and patients. Both studies include single and multiple dose assessments, and both have various cohorts with specific patient populations. This accelerated person-human study design yields data on safety and tolerability, dose response, duration of effect, and how different types of patients respond to the therapy.

9:36 It allows us to give data readouts from both programs at two or three conferences over the next few months. It also gives us enough actionable information about each candidate to engage regulators, and discuss the next stages of clinical development up to and including potential registrational studies. We've already been communicating with the FDA on AeroApoC3 and our plan is beginning to take shape. We will have similar discussions on AeroAng3 and also engage with European authorities to gain clarity on various study design characteristics, endpoints and target patient populations. Importantly, both candidates provide a high level of optionality on which patient populations and disease characteristics to focus on and how to stage the clinical studies to assess the candidate's utility. For example, for aeroaplasty 3, there are potential patient populations that range from ultra-rare, genetically defined, such as FCS, in which patients have triglycerides in the thousands of milligrams per deciliter, to extremely high prevalence disease, such as patients with mildly elevated triglycerides above 150 milligrams per deciliter.

10:46 There are also various levels in between these extremes that each have their own characteristics and would require a different clinical design with respect to size of study, duration of treatment, and acceptable endpoints. Taken together, this represents a very large market opportunity. In the U.S. alone, there are estimated to be approximately 1 million adults with triglycerides greater than 1,000 milligrams per deciliter, more than 3 million adults with triglycerides between 500 and 1,000, and more than 41 million with triglycerides between 200 and 500. Of course, not all of these patients will be potential candidates for therapy, but thinking of aeroA plus C3 solely as an orphan indication drug candidate is missing the larger breadth of opportunities ahead.

11:31 This type of opportunity also exists for aeroAng3 and patients with mixed dyslipidemias, specifically triglycerides, LDL-C and other measures of cardiovascular and metabolic disease. I don't think investors fully appreciate the size of the potential commercial opportunities for both AERO APOC 3 and AERO ADS 3. This is an exciting time for these programs as we are beginning to see potential paths to commercialization. We will be talking about these paths and timelines in the future, which should provide a level of detail for investors to properly assess how significant the opportunity is to help very large populations of patients that could benefit from new treatment options. We have also made good progress on AeroHSD in development to treat alcohol and non-alcohol-related liver disease. We began dosing in a Phase 1-2 study in March.

12:20 We have since completed all healthy volunteer cohorts and have activated the cohorts and enrolled patients with NASH or suspected NASH. The target, HSD17B13, is not a secreted protein, so we will be collecting liver biopsies to measure target engagement. This program experienced a short pause in screening and enrollment due to the COVID-19 situation, but similar to other programs, we don't think this had a material effect on our anticipated timelines. As long as patient screening and enrollment continue to move forward as planned, we should be generating data through the end of 2020 and be in a position to present in the first half of 2021. Lastly, I want to mention AeroENAC, our first inhaled RNAi candidate to target the pulmonary epithelium. We anticipate dosing to start this month in our Phase 1-2 study in Healthy Volunteers and in patients with cystic fibrosis. The candidate is designed to reduce expression of the epithelial sodium channel or ENAC in the lungs to help rehydrate CF-related dehydrated mucus and potentially help improve mucociliary clearance.

13:23 As we discussed on our ENAC webinar last week, there has been great progress in new therapies to treat CF over the last decade, but significant unmet needs still exist. We estimate that there are approximately 14,000 patients in the U.S. alone that are either not eligible for the most advanced therapies because of their specific genotype or have been shown in clinical trials to be nonresponders or insufficient responders. This is a lot of patients who still suffer from CF and are in need of alternative treatments. We think ENAC may be the alternative, and importantly, the mechanism of action should theoretically be genotype agnostic. This is an exciting program, and we hope to generate data through the rest of 2020 that may enable us to have a data readout in the first half of 2021.

14:10 Our preclinical data has been highly promising, and we are eager to see the translation of animal data to humans in our new pulmonary trim platform. With that overview, I'd now like to turn the call over to Dr. Javier San Martín. Javier?

14:25 Thank you, Chris, and good afternoon to everybody on the call. I want to highlight a few of our clinical programs and some key progress we made since our last conference call. Just like all biotech companies, COVID had an effect on some of our programs, but I'm very pleased to say that it appears the effect has been generally minor. In fact, some programs experienced little to no delay in our anticipated timelines. We continue to monitor the situation closely to ensure the study participants are not being exposed to additional risk, while at the same time moving forward rapidly when it's safe to do so. Even in the challenging environment of the last several months, I'm proud that Arrowhead's clinical development team has executed at a very high level.

15:13 Let's start with Arrow AAT, our second generation investigational RNAI therapeutic being developed as treatment for a rare genetic liver disease associated with Alpha-1 antidepressant deficiency. As we announced last quarter, we voluntarily put the Sequoia Phase 2-3 study and the 2002 open-level study on a temporary pause for new screening and enrollment due to concerns around COVID-19. Both studies are now back up and running and open to new patient screening and enrollment. The pause caused a delay of approximately eight weeks for Sequoia and for the second cohort in 2002, after which sites began to reopen and resume patient screening.

15:58 The first cohort in 2002 was already fully enrolled, and importantly, we did not experience any concerning protocol deviation for those already on study. Let's talk more about 2002 open-level study because we plan to have data readout this year. To review, the study is designed to enroll approximately 12 participants in two sequential cohorts. Between the two cohorts, biopsy data will be assessed at Bayson, and after six and the last 12, 18 and 24 months of treatment with AOIAT. As I mentioned, the first cohort, which is four patients, was already fully enrolled prior to COVID-19, and patients have continued on study as planned. All doses were administered, and the six-month repeat biopsy have all been collected.

16:48 Samples are being processed as we speak, and our plan is to have analysis completed in time to submit a late break after to the ASLB This is a potentially important readout for the program and for the field, because it is the first view of what happens inside the liver in Alpha-1 patients after receiving therapy. We will be assessing reduction in the Z-AAT monomers, which we would expect based on the plasma data from our Phase I Healthy Volunteer Study. The Phase I data demonstrated that aero-AAT treatment led to reduction in serum AAT levels down to below the level of quantitation with a multi-month duration of effects. This suggests that we may be achieving near complete suppression of the liver production of the mutant Z-AAT protein.

17:39 At this time, no other therapy has shown this type of result using any modality. We will also be looking at whether the accumulated Z-AAT polymers can start to decrease after six months which are not expected but would be pleasantly surprised to see. In addition, we will look at changes in inflammation and in various histologic parameters. Again, we wouldn't expect to see these measures change after only six months of treatment, but it would be a very exciting result if we were to see improvement this quickly. Let's now move to our cardiometabolic pipeline. I will start with AMG-A90. and Investigational SiRNA Therapeutic Design to Lower Lipocortin A or LpA for the treatment of cardiovascular disease, which is licensed to Amgen.

18:26 As Chris mentioned, Amgen recently started a Phase II study, which I'm very excited about. The study is double-blind randomized placebo-controlled Phase II study to evaluate efficacy, safety and tolerability of AMG-A90 in approximately 240 subjects with elevated LpA. The primary endpoint is the percent change in LTA from baseline to week 36. Key secondary inputs include the percent change in LTA from baseline to week 48, percent change in LDL cholesterol, and ApoB from baseline to week 36 and 48. Now, moving to our two wholly-owned cardiometabolic candidates, AeroApoC3 and AeroAge3. Let's begin with AeroApoC3, our candidate targeting apolactoprotein C3 being developed as a potential treatment for patients with hyperlipidemia.

19:20 We continue to be very impressed and encouraged by results from the ongoing Phase 1-2 clinical study called AeroApoC3-1001. I will talk about the study design and progress, and let's discuss where and when we expect to present data. 2001 is the Phase 1-2 single and multiple-dose study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamic effect of AeroApoC3. There is a single-dose and multiple-dose portion of the study in adult healthy volunteers and multiple-dose portion of the study in patients with hyperglyceridemia. The study reached full-plan enrollment of 80 subjects, and we subsequently expanded the study to assess a total up to 112 subjects.

20:09 As of today, 100 subjects have been treated. The first data from a single-dose healthy volunteer portion was presented at the American Heart Association in 2019. We have been accepted to present additional data at the European Society of Cardiology meeting, the National Lipid Association meeting, and we might potentially have additional data at the American Heart pending after acceptance. In the second half of 2020, we plan to have multiple dose and follow-up data in both healthy volunteers and patient cohorts. Together, this represents a rather full data set and should be a good view on the safety and activity of AeroApoC3. Data from the AeroApoC3 Phase 1-2 study have indicated a very potent triglyceride reduction. Frankly, more potent than anything I've seen before.

21:03 Because of this, we are exploring potential designs for the next stages of clinical development to study the role in multiple patient populations that might benefit from triglycerides reduction. We have been engaging with regulators on that topic and hope to provide some clarity later this year. We're hopeful that during the first half of 2021, we will be able to initiate a Phase III study in a smaller population and a Phase IIb study in a larger population. Our other wholly-owned cardiometabolic candidate is aero-ange-3, targeting angiopoietin-like protein-3 or ange-TTL-3, and is being developed as a potential treatment for patients with mixed dyslipidemia.

21:48 The current clinical study is called aero-ange-1001. It is a Phase I-II single and multiple-dose study to evaluate safety, tolerability, pharmacokinetics, and pharmacodynamic effects. Both the healthy volunteer and patient portions of this study have reached full plan enrollment of 93 subjects. Similar to ARO EPOS-C3, we continue to be very encouraged by the clinical data and plan to present at ECS and NLA and hope to also present at the American Heart Association pending after acceptance. We're working on clinical development plan and will be engaging with regulators shortly to discuss this plan. Our hope is to start a Phase IIb study in the first half of 2021 in a preoperative patient population that might benefit from a lowering of both triglycerides and LDL cholesterol. This may affect multiple cardiovascular risk factors simultaneously, which is potentially very exciting.

22:46 I will now briefly touch on progress in our earlier stage pipeline. AeroHST is our investigational candidate for the potential treatment of alcohol and or non-alcohol-related liver disease. The genetic validation is strong for inhibiting the target HST17-data-13 in NASH cirrhosis and alcoholic hepatitis and cirrhosis patients. This is an exciting program for us as it is the first candidate against this novel target using any modality to enter clinical studies. who are conducting a Phase I, II single and multiple-dose escalating study to evaluate the safety, tolerability, pharmacokinetic, and pharmacodynamic effect of aeroHSP in normal healthy volunteers as well as in patients with NASH or suspected NASH.

23:37 Additional exploratory objectives include assessment of various measures of drug activity using liver biopsy. We have completed enrollment and dosing A healthy volunteer portion of the study, and we have initiated the multiple dose portion of the study. There was a short delay in this study due to COVID-19, but it did not materially affect our anticipated timeline. We anticipate that initial data should be available to present in 2021. Our two other early stage programs, AeroHIF-2 and AeroENAC, are also our first candidate targeting tissues outside the liver, AROHIF-2 is designed to treat renal cell carcinoma and work on physically in patients to begin a Phase 1b study.

24:25 ARO-ENAC, designed to treat cystic fibrosis, is scheduled to begin dosing in Phase 1-2 study this month. We hosted a webinar last week to talk about the target, the preclinical data, and the plan for the candidates. The webinar also featured outside cystic fibrosis expert, Dr. Marcus Mohr. It was full of good information about the program, and I highly recommend you watch the replay if you didn't see it live. It is still available on the events and presentation page on our website. I will now turn the call over to Ken Miskovsky, Arrowhead's Chief Financial Officer. Ken. Thank you, Javier.

25:09 As we reported today, our net loss for the quarter ended June 30, 2020, was $13.6 million. or 13 cents per share based on 101.8 million fully diluted weighted average shares outstanding. This compares with net income of 20.3 million or 21 cents per share based on 98.9 million fully diluted weighted average shares outstanding for the quarter ended June 30th, 2019. Revenue for the quarter ended June 30, 2020 was 27.4 million compared to 42.7 million for the quarter ended June 30, 2019. Revenue in the current period 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.

26:06 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 HBV clinical trial. We expect the remaining $26.3 million of deferred revenue to be recognized in this calendar year. In addition, current period revenue also included the $20 million milestone payment we accrued due to Amgen initiating their Phase 2 clinical trial for AMG 890. Revenue in the prior period related to The recognition of a portion of the upfront payments and milestones received from our license and collaboration agreements with Janssen.

26:52 Total operating expenses for the quarter ended June 30, 2020 were $43.3 million compared to $24.1 million for the quarter ended June 30, 2019. This increase is primarily due to increased non-cash stock compensation expense. Stock compensation expense has increased because the valuation of new stock option and restricted stock awards granted has increased with the growth in our stock price. Additionally, stock compensation expense increased due to the timing of achievement of certain performance-based awards in each period. The increase in our total operating expenses was also driven by the increased clinical trial costs as our pipeline of clinical candidates has increased and increased personnel costs in both R&D and G&A as our headcount continues to grow.

27:49 Net cash used by operating activities during the quarter ended June 30, 2020 was 33.4 million compared with net cash provided by operating activities of 10.5 million during the quarter ended June 30, 2019. The increase in cash used by operating expenses during the quarter is consistent with the increase in our cash operating expenses. The cash provided by operating activities in the prior period was driven by the receipt of a $25 million milestone payment from Janssen due to the initiation of the triple combination cohort in the HBV Phase 1-2 clinical study. We estimate our near-term cash burn to average $30 to $35 million per quarter.

28:37 Turning to our balance sheet, Our cash and investments totaled $464.6 million at June 30, 2020, compared to $302.9 million at September 30, 2019. The increase in our cash and investments is primarily due to the December 2019 equity financing we completed, which generated $250.5 million in net cash proceeds for the company. Our common shares outstanding at June 30, 2020, were 102.3 million. With that brief overview, I will now turn the call back to Chris.

29:15 Thanks, Ken. As we've discussed, Arrowhead has a lot going on in all of the following stages. One, platform development and expansion into new extrahepatic tissues such as lung, tumor, muscle, and other cell types. Two, early discovery as evidenced by several COVID-related programs. Aero J&J 1, 2, and 3, and other undisclosed programs. Three, early development, such as Aero Lung 2, Aero Hip 2, Aero ENAC, and Aero HSD. And four, emerging mid- to later-stage development, such as Aero AET, Aero APOC 3, Aero ANG3, and partner programs J&J 3989 and AMG 890. This is a very large pipeline with enormous opportunity for a company of only 200 people that currently only burns between $30 to $35 million per quarter and has a market cap less than $5 billion.

30:08 This again speaks to the era and culture of finding a way forward and not allowing bureaucracy or legacy processes to block innovation. It is also a testament to our commitment to capital efficiency and being good, responsible stewards of the capital that we have been entrusted with. Even as we continue to grow, these attributes will be important parts of the Arrowhead culture. The rest of 2020 is going to be very busy. We anticipate multiple data readouts, important clarity on the future paths and timelines for some of our programs, and new announcements about previously undisclosed targets and candidates. Our existing programs continue to advance and the reach of our technology platform continues to expand. This is a very exciting place to be. Thanks again for joining us today. I would now like to open the call to your questions.

30:53 Operator? Thank you at this time. If you wish to ask questions, please press star 1 on your telephone. Our first question from the line of Alethea Young. Your line is now open. Hi, thank you. This is Alberto on for Alethea from Cantor Fitzgerald. Congratulations on the quarter. and I have two quick questions. So first is the HIP2 program, which you started in December, if I recall correctly. We were just curious about how you're thinking regarding updating the street on that. Will you do an interim readout later this year or are you waiting for all patients to be treated?

31:34 Yeah, thanks for that question. We're not planning an interim readout this year. I'll tell you, that has progressed a bit more slowly than we had hoped. As you mentioned, we filed that IND in December. and frankly, I expected us to be dosing that by June. COVID really slowed us down on that. Because it's a biopsy study, we are focused Not entirely, but largely in academic institutions. And so that's just taken a long time to get contracting done to start that study. We are hopeful that we'll start to dose that shortly. And look, it's our anticipation to report that once that study is complete. And so by the end of this year, it is unlikely.

32:19 Maybe in the middle of next year, but we'll see how that goes. We'll give you better guidance once we start dosing that. Thank you for that. And then just on the AHD asset, do you have a view on potential differentiation that different RNAi approaches can have in liver disease? And along those lines, is it still your goal to find a partner for this program, or are you considering going at it alone? And if so, or either way, I guess, what gives you the confidence to continue investing in this, given the challenging space?

32:54 Sorry, which program, AHD, did you say? Yes. Okay. Yeah, so look, so I'll tell you, our initial differentiator is our speed. You know, we are the first, as I understand it, I think we're the first company of any modality, you know, to bring an HSD-based therapeutic to the clinic. And so that's going to be interesting. So that's first. Look, I expect that to be a good therapeutic. I expect that to be potent, and I expect good deep knockdown. And so I think we've got a very good shot at having something that's going to knock down that protein. So here are the challenges. Challenge one is that it's not a secreted protein.

33:42 And so at least right now, there's no secreted biomarkers. And so it's going to have to be, at least in the near term, a biopsy study. We are okay with that, and as you know, the current study enables that, and I think that we can roll that no problem. But that's going to be a bit of a challenge. The second challenge is that the mechanisms of this target are not well understood. The genetic validation is clear. It appears that knocking HSD down should be very beneficial for NASH and even more beneficial potentially for alcohol-related hepatitis. but the biology of that still is a bit lagging and so we'll see where that goes. We are excited about the program. At some point, could that be something that we target?

34:29 Sure. But at least right now, we are happy to push that forward as it is. We can handle it as it is. NASH is a complicated space, but at least at this early stage of this program, we're happy to continue moving forward. And then we'll just be optimistic. Should a good deal at some point happen, we're happy to listen. But right now, we're happy to continue to treat patients. Thanks again for that, and congratulations. Sure, thank you. Thank you. Next question from the line of . Your line is now open.

35:08 Great. Thank you for taking the question. What levels of the polymer reduction do you expect to see in the six-month AET liver biopsies, and what do you think is necessary in order to approach the FDA on changing the primary endpoint and or shortening the Phase 2-3 trial? And then I just have a follow-up on the program.

35:26 Sure. So I'm glad you asked that question because I want to be clear on this. We don't expect changes in polymer content after just six months. We do expect substantial monomer reduction, you know, and that would be reflective of, you know, of our expected activity of this drug, as we saw in the Healthy Volunteer study. Although those are platinum levels, we saw good deproduction, as Javier mentioned. And so we expect good reduction in monomer at this point. Polymer is a different story. Look, it's not clear how that's metabolized. You know, one of the good news, bad news of being pioneers here is that, yes, we're first, but bad news is we're first. And so there's a lot of things we have to learn here.

36:12 One of the things is how this polymer is metabolized. It could be that we are relying on the hepatocytes to turn over to decrease that polymer because we don't know if it's possible that metabolism is is very slow if they can metabolize at all. So our take-home message is, look, we do expect good deep reduction of monomer. We expect virtually no or no reduction in polymer and probably no changes in inflammation at this early point at six months. I think there's a better likelihood that we would see some of those changes starting after maybe a year of therapy.

36:53 Got it. That's helpful. And then on the ARROW ENAC program, what dose level would you penetrate the tissue, and how do you see your asset differentiated from the competitors in the space?

37:05 Javier?

37:07 So this is how we're dosing patients, health volunteers first and then patients, and this is coming from the experiments in the preclinical lab. When you see the total dose that we will dose patients, approximately 25% of that dose is expected to be delivered to the lung, and that is an efficiency related to the nebulization process. So that's an estimation, but right now, you know, we don't know for sure, but that's what we've seen in the preclinical work and expected to see in the clinical work. However, in clinic, it's very difficult to know, of course.

37:44 And regarding competition, look, I think we've said Favorably, from a competitive standpoint, it's a well-validated target. People have gone after ENAC with small molecules in the past but have generally not been able to reduce it enough in the lung but spare it in the kidneys. We are confident that we will not reduce it in the kidneys. We've done exhaustive studies in animals to suggest that we don't expect reduction in the kidneys. I think that we are virtually alone. at least with this target right now in cystic fibrosis. You know, there have been some anti-sense programs, but I think that those will likely have the same issues that other anti-sense programs have had, which has been related to TOCS.

38:36 Great. Thank you. Thank you. Next question from the line of Ted . from Piper Sandler. Your line is now open. Great. Thank you very much for taking the question. I wanted to ask a little bit more in terms of the COVID program. With so much going on in the space, you know, what are the benefits of RNAi mechanism potentially for COVID? And can you tell us a little bit more about sort of maybe how that clinical program looks? Thanks.

39:11 Sure. There's not much we can tell you on that because we're still early there and we're still really exploring a lot of things. But as I mentioned in the prepared remarks, there are three broad areas that we are interrogating simultaneously. is knocking out or knocking down receptors in the lung that enable the virus to get in. That biology is reasonably clear or as clear as it can be for this virus. So we will be going after that. I think we have a role to play there. And look, we've got a clinic-ready lung program, and we've been leaders in HPV. We were the first ones to show a good potent antiretroviral and so on. coronavirus. But to think of this more broadly, you know, if one were to expect there will be coronavirus outbreaks in the future and the past is prelude, that's probably a good assumption.

40:26 We would hope to find some well-conserved regions among known coronaviruses that we could knock down and have antiviral effects. We are interrogating that right now. We think we can play in that space. And third, with anti-inflammatory. This This jives well with our other lung programs. We think that there are good indications for anti-inflammatories, and so we're developing that right now, and we think that that might play a role in a therapeutic for coronavirus. Cool. Sounds interesting. I look forward to hearing more.

41:05 Thanks, Ken. Next question from the line of Luca Easy of RBC Capital. Your line is now open.

41:17 Oh, terrific. Thanks for taking my question, Luca Easy from RBC Capital. Two questions, maybe one for Javier on A180 and maybe one bigger picture question for you, Chris. So, on A180, it sounds to me that you're saying that there is somewhat of a time lag between the reduction in the monomer versus the reduction in the polymer. However, when I see the perclinic of data published at JCI, I don't see that much of a lag there, as actually it appears that the monomer and the polymer gets reduced concurrently there. So just here is about what am I missing there. So that's the first question. The second question, Chris, on the strategy, you obviously have a very impressive pipeline at this point. Can you just maybe dichotomize the world for us?

42:03 between assets that you feel you have generated enough data that you would consider a partnership now versus assets that you want to further de-risk before entertaining any type of partnership. Thank you.

42:17 All right, so the first part of the question related to how the preclinical work correlates to the clinical. I think the first difference is that we haven't looked at very early standpoint in the preclinical work. It's more like on the longer term. So I don't think we have a way to see the dynamic inhibition or reduction of different components of the mutant protein in the liver. So that's one component that I think we need to understand. I think we are now getting more and more information from the natural history study that we've done and we're collaborating with others that this is clearly a dynamic progressive chronic disease and it happens in different stages as we are learning. So the main problem is the production of this abnormal misfold protein that gets accumulated in the liver initially as monomers and then eventually get organized as polymers as the time goes back, become disc globals.

43:15 This is the reason why then patients develop inflammation and as this continues develop fibrosis and finish with late stage liver disease. So we see this as a very dynamic process that starts with something that can be addressed immediately, which is inhibited production of this mutant protein, and that over time will be associated with a decrease in the monomers in the liver and the polymers, and eventually that will reduce the insult that caused the inflammation, the progression of the liver disease. and actually the 2002 study likely will answer this question more precisely because we're looking at biopsies at four time points post initiation of therapy 6, 12, 18 and 24 months. So probably we'll be able to map out how this dynamic sequence of events happen and how we can intervene by inhibiting the insult and allowing the liver to heal.

44:15 Thanks. So with regard to your more strategic question, that's a key question for our strategy, as you know. You know, we have been really focused on building this large pipeline and not slowing down. You know, we've heard me say it before. Look, I think we're going to have 10 clinical programs, you know, pretty soon. And I think we double that to 20 in the next few years. And so what that gives us is an awful lot of currency, you know, to do some partnerships. Because, look, you know, we are frankly no company, I don't think, nearly our size, even double our size, even triple our size, you know, could commercialize all those for goodness sakes. And so we have... We've got the ability to go through that and find clusters of assets that we can commercialize ourselves to bring us to that next level of growth and then partner out of those out.

45:08 With respect to which ones we can partner right now, if you look at the current clinical programs where we have data, AAT, APOC3, and ANG3, I'd be willing to suggest that we have enough data to partner any of those. The data have been quite good on all of them. AAT, as Javier showed, and Health Volunteers, we were showing decreasing levels of plasma down below the level of quantitation. and the concept there that we are doing what we expect to do in a well-tolerated manner. APOC3, you know, we're seeing 95% reduction of triglycerides in patients. Also lowered, you know, a lowering of LDL also in these patients.

45:56 So far have been well-tolerated. I think enough data have been generated. I think we've dosed 100 patients so far, or human subjects, being patients and healthy volunteers. I think there's enough data there to, you know, to part of that should we want to. AeroAns3, you know, a reduction of LDL in non-LDL receptor-mediated fashion, well-tolerated. The same thing there with dose was 93 patients, I guess, so far, and been well-tolerated and been active, and so I think that we've hurtled that far as well. So the point is I think those are all partnerable now, and I think it's now incumbent upon us to continue to move these and other programs forward and then to figure out which ones and at what time we're going to want to partner.

46:47 Super. Thank you. Thank you again and congrats on all the progress. Thank you. Next question from the line of Ray Croft of Jeff Reiss. Your line is open.

47:01 Hi, everyone. Congrats on the progress and thanks for taking my questions. First question was on arrow AAD. Just wondering if you validated an inflammatory biomarker assay yet for that program?

47:15 We haven't validated ourselves, but it is a very valid way to look at inflammation. We like people to do an early look at the same way we look at it in the preclinical way, which is quantify forces of inflammation by field and by portal area. So the first way that inflammation would be very standard, I think, well-described, quantifiable, and that you can really – it's reliable and you can compare, you know, baseline to post-baseline.

47:46 Got it. And I'm wondering for that program, too, if you can provide any details on the baseline characteristics of the patients that you've got in the open-label study, and how do those baseline characteristics compare to some of the patients that you've enrolled in Pivotal Phase 2-3?

48:03 Well, so I don't have any details right now. We can follow up if you want offline. So I don't recall exactly, but we can get back to you later.

48:13 Yes, of course, you know, the goal there was to be treating similar patients, and so what we see in the open label study, you know, our anticipation is that that will read on what is likely happening within the blanket study. So the question is, you know, are they different slots of patients? The answer is they really shouldn't be.

48:33 Because the inclusion criteria is similar, and so I was about to repeat that, but essentially, you know, the age groups is 18 to 25, to 50 or 55. Of course, it has have an FEV1 higher than 65. So, the inclusion criteria are very, very similar. So, we expect that this result will be applicable to understand what happened on the larger Phase 2-3 study.

48:59 Got it. And I think in the prepared remarks, you said you've been having discussions with regulators for APOC 3 and ANG3. Can you provide more clarity on when you're going to finalize plans and disclose some more of the details from your discussions with the regulators in the U.S. and the EU?

49:15 I don't think we're ready to provide guidance on that yet. We did have interactions with the FDA over the summer, and so we're still formulating our strategies there.

49:29 Got it. Okay. Thanks for taking my questions. You're welcome. Thank you. Next question from the line of Madhu Kumar. Your line is open.

49:40 Hey, everyone. Thanks for taking our questions. So, my first one is on AAT. So, kind of following up on Luca's question, so you can imagine there are two schools of thought around clinical benefit in the alpha-1 and A-tribs in liver disease relating to either reversal of polymer and globule formation versus liver cell turnover. Based on your belief that six months will not be enough for AAQ knockdown to translate to clinical benefit, do you put yourself in the kind of liver turnover school of thought, or do you think you're kind of spread between the two? Or, like, how do you think about it in terms of which realm do you think you'll get benefit in terms of the alpha-1 and the trypsin liver disease?

50:23 I'll tell Matt how to understand this. I don't think we know. We know that polymer should be reduced via hepatocyte turnover. That's what we think we know. And that's about it. I don't think we have a good idea about the metabolism, but beyond that.

50:45 Yeah, I think, as I said before, this is one of those liver diseases that start with an insult, such as hepatitis, such as NASH. And as you know, when you remove the insult, more likely liver improve, and that means are shown in many different circumstances like this. So this is treatment that will remove the insult that is new, and with time, the remodeling will get rid of the polymers and globules, and that will hopefully allow the cells, the hepatocytes to heal and, you know, prevent the complication and the progression of the disease to a stage called cirrhosis. So that's how we're thinking about it.

51:28 So y'all don't think the preclinical data suggests there's a back reaction that occurs where polymer or monomer converts back to a state? If you don't have a nascent AAT forming, you don't think there's a back reaction that happens?

51:45 A back reaction meaning an un-polymerization, if you will?

51:49 Exactly.

51:52 I just don't think we know. We just don't know.

51:56 Okay, and then on AeroENAC, so you obviously have kind of gone into the lung, and that's really exciting as an opportunity. What data do you need to see from AeroENAC to kind of more broadly pursue the lung, including the COPD indication, the other kind of pulmonary petroleum-directed lung indications? Like, what do you need to see? Do you need to see FEV1 benefit, or do you need to see something more proximal to that that will give you kind of confidence that you can hit targets in the lung?

52:25 Yeah, well, so this is a phase one study, of course, but we're doing two assessments in patients, which is FEV1, so spirometry, well-established, and then LCI, or Lung Clearance Index. And we think that that is particularly sensitive methodology to assess early changes, and somehow probably related or correlated to the NCCO and conciliary clearance, conciliary clearance. So we did a webinar about a week ago, and there are a number of details in that webinar that, you know, you may want to, if you haven't seen it, you can take a look because it's in our webpage. But I think the LCI, you know, we have enough patients in this Phase 1 study to likely see difference in LCI or changes.

53:13 And also, if you put all the patients together, because LCI will be done in a subset of patients with FEV1 greater than 70% because the methodology is precise in that kind of patient population. Now, we're doing FEV1 in all patients, all three cohorts of patients with cystic fibrosis. So, we think that we are in a good situation to look at change from baseline and perhaps see an initial difference assuming, you know, a significant change. So, we do believe that we will have proof of concept data, what this study is designed to achieve that goal in the phase one.

53:52 Okay. So, then, following that logic, the Lung Clearance Index as a measure for ENIC in the a surrogate measure for ENAC inhibition. That's the kind of key barometer for you to kind of broadly pursue the lung?

54:08 Well, no. It will give us information that there is a pharmacodynamic effect, not necessarily only the inhibition. That will tell us that there is an improvement in respiratory ventilation homogeneity, which is related to MCC and eventually clinical benefit. So, it's actually a pharmacodynamic. It's not just a level of no-cal. We won't be able to measure that, of course, clinically with this target because, you know, you have to have a lung biopsy. So, it's going to be really a pharmacodynamic result, and the study is designed to be able to see those changes definitely with LCI and hopefully also with FEB1.

54:50 Gotcha. Awesome. So then stepping back and thinking, I know previously we've all talked about this idea of kind of the fancy term I guess is bispecific RNA, like hitting multiple targets at the same time. Like where is your progress on that and where are you thinking about pursuing that considering you've got this whole kind of basket of cardiometabolic targets where I think a Not unreasonable expectation would be, well, why not go after multiple targets at the same time? So how are you thinking about that? What do you need to do to kind of really pursue that in gusto?

55:27 Yeah, that's a very smart question, I think, and it's something we think about a lot because you're right. Cardiometabolic, you know, we've got the data we've seen so far with APO and ANG are so intriguing that if you could combine those, that's even more intriguing. But you can also imagine that within the lung, there are several targets that could be very interesting by combining those. You can also think of this in NASH as well. There are multiple pathways you could address if you could go after what they call a bispecific or dimer. So yes, we are on the same page with the great possibility of the bispecific or dimers. We're still working on that. There are challenges there associated with potency and such, and we're still working there. I think we can see it, but we're not there yet.

56:19 So stay tuned. We'll have additional updates as we approach the clinic with one of these. But it's still early-ish days on this concept.

56:34 Okay, great. Thanks very much, guys. This question is on the line of Mani. Faruha of SGB Fairlane. Your line is open.

56:49 Hey, thank you very much. So I don't think I can match the elegance of Madhu's question around law of mass action as part of A1AT. So thinking about it in perhaps a more, well, we'll say a little bit more of a craft way, going back up 10,000 feet, when you think about the time horizon to see a polymer benefit, and clearly it's not going to be six months. It'll be some longer period versus the time horizon to see histology improvement. Should we expect polymer benefit to lead histology improvement by a year, two years, some very long period of time or should it be very quick, one striking after the other, given what we know about from the preclinical data and natural history? And then I have one quick follow-up on a boring finance question.

57:44 We really don't know the goodness. I think we're going to answer the question as we go along. And the phase 2-3 study, the post-baseline biopsy is right now a two-year post-initiation of the study. So we're taking right now a relatively conservative approach to do the post-baseline biopsy two years after the initiation of therapy to allow enough time to be able to see what we see in the preclinical work. Now, exactly how that would look like, I don't know, but 2002, as a sequence of biopsy at different time points, different patient population, might help us to, you know, fine-tune the time frame of changes, monomer, polymer, globules, and the consequence, liver damage associated with that. So, more to come.

58:34 Yeah, and just to get in. To reiterate our time and expectations here, as we mentioned, we are processing and analyzing the biopsies right now. It is our anticipation that we'll have data in time to submit a late-breaker abstract to ASLD. My hope is that we get accepted there, and so I think we can have more educated conversations about it, It's just too early to tell. The three clinical data were interesting. We saw improvements in all of these measures. We just don't know how the kinetics of those are going to translate from rodents to humans.

59:21 That's really helpful. And on the more boring finance question, you spoke a little bit about the impact of stock-based compensation, etc., So clearly your stock has been volatile the last couple of years, which is not surprising given the amount of data that you've produced and the milestones that you've hit, et cetera. So when we think about modeling stock-based comp, we think about it in terms of shares issued as opposed to dollars, which takes that impact out a little bit. Should we expect shares issued or options issued in a notional sense to be about flat versus this year? up materially, you know, down slightly. How should we think about that as we model that going forward on a stock issuance perspective as opposed to trying to use a dollar amount for pretty volatile equity security like yours?

1:00:15 Yeah, I would expect that to be pretty flat, you know, on a stock basis. Again, you know, to use your differentiation, right, you know, not on a dollar basis but on a number of share basis.

1:00:28 Great. That's really helpful. Thanks, guys. You're welcome. Thank you. Next question from the line, Maya Montani of B Rally. Your line is open.

1:00:44 Congrats, team, on the progress. Just no more A180 question. I just want to drill down on the cardiometabolic portfolio. Starting with the 890, the Amgen compound, Could you just comment on what data they have presented or they will present? And, you know, in context of another agent that is already in outcome study, just kind of anything that is out there, you know, you can talk about the data that they have so far.

1:01:13 Right. Yeah. So, as far as I know, they have not presented any data. I'm not in any jeopardy of telling you something I shouldn't tell you because they haven't told us anything. My expectation is that they would present some data by the end of this year at what venue, what time, I don't know. Good, Deep, and Durable LP little a knocked down. But that was speculation based on the animal models. So, you know, we'll be looking forward to seeing that side-by-side with you.

1:02:01 Okay. And then on APOC3, I'm sensing there's a little bit of change relative to, I think, what you were talking about earlier, you know, with ANCH3 maybe positioned for the broader population, but it seems like You want to do APOC3 also in the broader hypertriglycerid DNA space. So just curious, is it more to do with how the landscape there is evolving or with the regulatory dialogue you're having in real time? Or is it like the data that we'll get to see more at NLA and other conferences? Could you just maybe give more color there?

1:02:40 Yeah, thanks for asking that question because I think it's important. Part of this may be that we could have messaged this better. But another part is that our thinking really has evolved. We've talked a lot about addressing smaller populations because that looked like a near-term commercialization. And so we've always thought that that's how we approach this asset. We get into these smaller populations relatively quickly and then expand the label by essentially walking down the triglyceride levels. So think of this just in broad terms of, say, above 1,000 and then say 500 to 1,000 and then say 200 to 500 as we talked about in the prepared remarks. I think their first tranche, if you will, was 500 to 1,000, I think, was the first group they got approved on. In any event, so A, we are trying to message this a bit better that we see this as a whole group as a spectrum of patients that we can address from small market to larger market. So I want to talk about that a bit more.

1:03:52 But also, as I mentioned, I think that our thinking has changed here a bit, in part because the data has just been so good. As we look at the safety profile and as we look at the death of a transistor I've not ever seen and, frankly, the increase in HDL we have not talked very much about but we think still could be important, As we look at all that, we just say to ourselves, we've got something here that really should be brought to larger populations. And so, again, our goal here is to maybe start with small populations because we can get to that commercial opportunity most rapidly. But then to expand this out, then look, I think this is at least as large a market opportunity as ANG3 is. maybe larger, but at least as large as that, given the type of patients that we can address. Look, you know, the numbers we talked about, you know, 41 million adults are estimated to have triglycerides between 200 and 500 in the U.S. alone.

1:04:51 You know, that's a pretty big slot for us to potentially, you know, treat some subset of them.

1:05:00 Okay, great. And then on the ANG3, can you confirm if You still have some fatty liver disease subjects being enrolled there, and are you still planning to do PDSS on some of these subjects?

1:05:17 Yeah. So it's – Javier didn't understand what he said. So you're talking about the various patient cohorts, and are we still enrolling –

1:05:27 OH3 is completely enrolled, so we complete that study. We'll start to look at the data that comes. So, no, we complete that study together. And we're planning on the first interaction with the regulatory agency here, the FDA, to plan the Phase 2b study to start, hopefully, at the beginning of the first half of 2021. So, the study is complete in terms of enrollment, and very soon we'll have completed the 113 days final

1:05:58 And we've talked about living panels for all these patients and what has always excited us about this pathway and this target has been the possibility of lowering LDL in a non-LDL receptor mediated fashion and lowering triglycerides. the core of our interest. Now, if you go a bit beyond that, and you look at the possibility of insulin sensitivity and liver fat, the data that we and others have seen in animal models have been interesting, and so that was nice to have, but not a need to have, if you will, and we were looking forward to seeing whether or not we see that translate into humans. Given the data from antisense candidates, we are not expecting to see Improvement in Insulin Sensitivity. We're not expecting to see changes in liver fat.

1:06:54 Now that, you know, we haven't seen the data yet, so maybe we're wrong there. But just given what we've seen from anti-stents, we're not expecting to see that. We think that's fine because it's the triglycerides and LDL that make this a really powerful asset. But we do have those cohorts enrolled, and so we'll find that out, and we'll be reporting on those as well.

1:07:14 Excellent. Look forward to those updates. Thanks for taking my questions.

1:07:17 You're welcome. Thank you. And the last question from Robert . I'm sorry, your line is open. Hi. Thank you so much for taking my questions. First off, congrats on your progress and continued growth.

1:07:38 I only have a couple quick matters as you cover my other questions. I'm sorry if I missed it, but did Sequoia Part B start dosing yet?

1:07:47 No, it has not. Okay, and I know that you mentioned before that Arrowhead is comfortable in rolling out its own orphan drugs.

1:07:57 Would you consider partnering or selling any of your orphan drugs, especially ENAC or AAT, or are your orphan drugs off the table when it comes to these kinds of deals? No, I would say they're off the table. So don't think of us as an orphan indication company, but also don't think of us, you know, as holding on to everything that we have in those spaces. I think that, you know, if you fast forward, you know, five or ten years from now, I think you'll see, you know, a portfolio of drugs, you know, some are small indications, some are large indications, some could be very large indications. So, no, there's nothing about smaller indications that would indicate that we are absolutely going to hold on to those, you know, come hell or high water. Okay. That's all I have. Thank you so much.

1:08:45 All right. Thank you. Thank you, and there are no further questions at this time. I would like to turn it over to Chris Anzalone for closing remarks.

1:08:55 Thanks, everyone, for joining our call today. I hope everyone stays safe and enjoy the rest of your summer to the extent that you can. Thank you, and that concludes today's conference. Thank you, everyone, for participating in all this tonight.