Arrowhead Pharmaceuticals, Inc. Q1 FY2020 Earnings Call

Thanks, Sydney. Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its fiscal first quarter ended December 31, 2019. With us today from 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 Myszkowski, our Chief Financial Officer, who will give a review of the financials. In addition, we welcome three new members to the management team: Jim Hassard, our Chief Commercial Officer; Dr. Javier San Martin, our Chief Medical Officer; and Dr. Curt Bradshaw, our Chief Scientific Officer. Dr. San Martin and Mr. Hassard 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. 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 the 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?

Thanks, Vince. Good afternoon, everyone, and thank you for joining us today. We made a lot of progress over the last two years as we build clinical validation of our TRiM platform. Early in 2018, we predicted that moving TRiM into the clinic to drive substantial value for us, and that came to pass. We initiated clinical studies with ARO-HBV, now JNJ-3989 and ARO-AAT. That same year, Amgen initiated clinical studies with AMG 890, formerly ARO-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 II/III study with ARO-AAT. Janssen launched two large Phase II studies with JNJ-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, ARO-APOC3 and ARO-ANG3, 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. We also filed to begin clinical studies for our first tumor-targeted drug candidate ARO-HIF2 and the first-ever candidate against the highly anticipated NASH target, ARO-HSD. 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. 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 TRiM 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 ten 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 ten clinical candidates could double to twenty just a few years later. 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 of 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. 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, ARO-APOC3 and ARO-ANG3 at the American Heart Association scientific sessions in back-to-back plenary presentations. These results were from the single-ascending-dose portions of first-in-human studies. They demonstrated robust, durable and dose-dependent reductions in APOC3 and ANGPTL3 proteins, leading to impressive changes in triglycerides and various other liver parameters. This is an important accomplishment by virtue of the quality of the data, the remarkable durability of the effect 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 APOC3, 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 ARO-APOC3. 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 ARO-APOC3 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 a history of pancreatitis. This is still a rare indication, but key opinion leaders tell us that the effective population is approximately hundredfold 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 ARO-ANG3. 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% for short exposure to ARO-ANG3. And in patients with triglycerides greater than 100 milligrams per deciliter, we saw a 79% reduction in circulating triglycerides. One of the cohorts, still blinded, is also evaluating the effect of ARO-ANG3 on insulin sensitivity and liver fat. As with ARO-APOC3, we expect dosing to be every four months or less frequent. While we view ARO-APOC3 as a rifle shot against severe symptomatic hypertriglyceridemia, we are developing ARO-ANG3 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 and pathologies, we view this as a potentially important medicine against metabolic syndrome and dyslipidemias, fellow trailers in creating cardiovascular risk. ARO-ANG3 and ARO-APOC3 appear to be powerful medicines indeed, and there still haven't been any reports of drug-related adverse events rated as serious or severe and no discontinuations due to the drug. We expect to present data throughout 2020 at various scientific conferences as the studies read out. These data are providing further clinical validation for the TRiM 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 candidates, ARO-HSD. We expect ARO-HSD 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, with approximately 30% to 50% risk reduction compared to noncarriers. 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 ARO-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 structure provides us with the fastest possible path to registration. Last month, we began dosing AROAAT2002, an open-label Phase II study with liver biopsies at baseline and after 6 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. In December, we filed an IND for ARO-HIF2, 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 ARO-HIF2 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. 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 I study, and we hope to begin dosing patients this quarter. Let's now move to the lung. As you know, we are 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 ENaC — on ARO-ENaC. We remain on schedule for a CTA filing in the first half of 2020 for this candidate. As with ARO-HIF2, 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 direct and TRiM platform, and we believe we can do the same with solid tumor and lung-directed TRiM platforms. Needless to say, everything I have described will take a tremendous amount of creative and highly integrated work. For instance, during the remaining eleven months of 2020, we hope to have up to three end of Phase II meetings with FDA and EMA for ARO-AAT, ARO-ANG3, and ARO-APOC3; 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. 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. Curt Bradshaw as Chief Scientific Officer; and Jim Hassard 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. Curt joined us from Tollnine, a company he co-founded to develop novel antibody conjugates for immuno-oncology. Prior to that, he was with Solstice Biologics, Traversa Therapeutics, CovX Research, Ligand Pharmaceuticals, and Abbott Laboratories. Javier joined us from Ultragenyx, where he was Senior Vice President and Head of Global Medical Development. Prior to that, he held clinical development roles at Alder Biopharmaceuticals, Amgen, and Eli Lilly, after beginning his career at CEMIC University Hospital in Buenos Aires as attending physician in internal medicine. Jim joined us from Coherus BioSciences, where he was Senior Vice President of Marketing and Market Access. Prior to that, he was with Medivation, Amgen, and Schering Plough. We also appointed Dr. Marianne De Backer as a new independent Director. She's 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. We got to know Dr. De Backer 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, 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. With that overview, I'd now like to turn the call over to Dr. Bruce Given. Bruce?

Thank you, Chris. Good afternoon, everyone. I'll give a quick update on the status of our clinical development programs. Let's start with ARO-AAT, our second-generation investigational RNAi therapeutic being developed as a treatment for the rare genetic liver disease associated with alpha-1 antitrypsin deficiency. We are currently conducting two clinical studies, SEQUOIA, which is an adaptive design, potentially pivotal Phase II/III study, and AROAAT2002, which is a pilot open-label Phase II study to changes in a novel AATD histological activity scale. For SEQUOIA, we intend to open around 40 sites in the U.S., Canada, and Europe. 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 ARO-AAT-treated patients relative to placebo, achieving a two-point improvement in the histologic grading scale of AATD liver disease and no worsening of liver fibrosis at end-of-study biopsy. We are also moving forward quickly with AROAAT2002. 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 ARO-AAT. 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 Z-AAT monomer production is affected and whether the accumulated Z-AAT 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 Z-AAT protein is clearly the cause of the progressive liver disease in these patients. 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 ARO-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 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. Press releases and presentation materials on ARO-AAT are available on our website if anybody wants a refresher. Now let's turn to our two cardiometabolic candidates, ARO-APOC3 and ARO-ANG3. 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. I'll start with ARO-APOC3, 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. 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 ARO-APOC31001. It is a Phase I/IIa single and multiple-dose study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamic effects of ARO-APOC3. The single-dose portion of the study is in healthy volunteers, and the multiple-dose portion includes patients with both severe hypertriglyceridemia and familial chylomicronemia syndrome. 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. 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 ARO-APOC3 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. We look forward to the opportunity to present these data at a medical meeting this year. Now let's turn to ARO-ANG3, our RNAi therapeutic targeting adjuvant like protein 3 or ANGPTL3, being developed as a potential treatment for patients with dyslipidemias and possibly metabolic diseases. The current study is called ARO-ANG1001. It is a Phase I/IIa 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. 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 nonalcoholic 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 200 or 300 milligrams, mean maximum percent reductions in ANGPTL3 approach 90%. 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 ezetimibe, 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 ARO-ANG3 and ARO-APOC3 continue to look similar to our other TRiM candidates, with the most common adverse effects being headache, respiratory tract infections, and injection site reactions, without drug-related discontinuations. We feel very good about the data generated to date and are eager to share additional data once they are mature enough. 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. ARO-HIF2 is our candidate against the target HIF-2 alpha being developed to treat clear cell renal cell carcinoma. 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 RECIST criteria using either CT or MRI imaging. A key exploratory objective for ARO-HIF2 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. Our goal is to have the first patient dosed around the end of the first quarter. ARO-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 HSD17B13 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. 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 I/IIa single and multiple dose escalating study to evaluate safety, tolerability, pharmacokinetics, and pharmacodynamic effects of ARO-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 ANGPTL3, we are once again the first RNAi company in the clinic against a very exciting target. With that brief review of our clinical programs, I'd like to turn the call over to Ken Myszkowski, Arrowhead's Chief Financial Officer. Ken?

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 I/II HBV clinical trial. Revenue from the Janssen agreement is recognized based on our estimate of the proportion of effort expended towards fulfilling our performance obligations, primarily overseeing the completion of the current Phase I/II HBV 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. 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 million 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. 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 shares outstanding at December 31, 2019 were 101.1 million. With that brief overview, I will now turn the call back to Chris.

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 believe we could achieve great things in 2018, and we did. We believe we could achieve great things in 2019, and we did. We believe we will achieve great things in 2020, and here are some of our goals: to file 2 to 3 new CTAs; initiate two new pivotal, potentially pivotal studies with ARO-APOC3 and ARO-ANG3; move SEQUOIA into the pivotal portion of that study; initiate our first pulmonary clinical study with ARO-ENaC; establish clinical proof-of-concept for lung delivery; established 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: ARO-APOC3, ARO-ANG3, the AROAAT2002 open-label study, ARO-HIF2, ARO-HSD, and ARO-ENaC. 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?

Our first question comes from Edward Tenthoff with Piper Sandler.

Can you hear me okay?

Yes.

Congrats on all the progress, really exciting to see as you guys can maybe 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 landscape between RNAi mechanism in the orals.

Bruce, you want to take that?

Thank you, Ted. I haven't observed anything significant emerging in our field yet. The other RNAi therapies are still in Phase I, and they don't have a wide presence at this time. Therefore, I don’t consider them a major concern for us, and we haven't experienced that perception. Regarding the oral treatments, there seems to be considerable confusion in the market. However, I don't notice much confusion within the investigator community. We do not believe these treatments will be competitive, as we don’t think they will effectively clear enough monomer from the liver to promote healing. Improvements are happening, but based on our observations, like those from infectious hepatitis, it’s essential to remove the underlying issue for the liver to recover. We feel that a minor reduction in monomer levels is not likely to heal the liver in a practical timeframe. While it might be helpful over five to ten years, we do not foresee it being a strong competitor in clinical trials. We also acknowledge the surrounding noise and confusion, and it's our responsibility to help clarify these issues.

To clarify the clearance issue, it is believed that alpha-1 antitrypsin is the second most abundant protein in the body, with the liver producing approximately 2 grams daily. Therefore, it would require a significant amount of corrector to effectuate its removal from the liver. Our data indicates that we are likely silencing this almost entirely within the liver.

And our next question comes from the line of Alethia Young with Cantor Fitzgerald.

Congratulations on the progress with the cardiometabolic platform. I have a couple of questions. First, I found your comments on HSD and the partnership interest intriguing. I'm curious if you are considering commercializing this asset further or if you might explore earlier partnerships. Secondly, you mentioned potential non-liver catalysts related to data. I want to confirm that we can expect data on HSD, and the other one is HIF-2, correct? Lastly, I would like to discuss ENaC in general. Could you explain why you believe RNAi is a superior approach, especially considering Vertex's past studies on it?

Okay. So let's start with the HSD, partner or no partner. So we're in a good spot here. We've got plenty of capital. We've got good experience running early- to mid-stage clinical programs and we've got a good track record 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 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. 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's certainly our goal to have data in our hands from HSD, from ENaC even, and from HIF-2 alpha. 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 we'll 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 prior failures there. Bruce, you want to talk about the biology then?

Yes. No, that's great. So Alethia, this has been a pharma target for a long time. And people have been trying to develop small molecule ENaC inhibitors; they have been able to develop small molecule ENaC inhibitors there. The problem has been that, 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. And in so doing, try to get the benefits of ENaC inhibition in the lung without developing, creating hyperkalemia, which is potentially fatal, and every single effort so far has failed. And you'll remember that Parion developed an inhaled ENaC inhibitor that GSK licensed and gave up on and failed, gave it back to Parion, and Vertex wrote a big check and bought it again and took it into the clinic, and they also failed. So 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 even Vertex thought that this was a very important mechanism to have their hands on, 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 — 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. 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. And 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. But the big advantage for ENaC will be that the therapeutic index around this is concerned about hyperkalemia. So far, we've never been able to see a problem, including in our toxicology studies. So that's the reason, Alethia. This is probably the only practical way to successfully go after this particular target.

And our next question comes from Maury Raycroft with Jefferies.

Congrats on the progress. To start, is the data we are looking at in the press release for ANG3 and APOC3 all based on single-dose information?

Maury, actually, 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's 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. We're in the active follow-up phase. So this is just a first look.

Got it. So it's a mix of data? Will you provide more details on this at ACC? What other details do you plan on sharing at the upcoming ACC meeting?

Look, so it's not clear, we will not be really 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 looks like it's just going to be a bit too early for mature data for these programs.

Got it. Okay. And then I know we don't have a lot of details from the ARO-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?

Yes. Look, so we haven't learned 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 just — it is, as a class, a potentially more powerful tool than antisense oligos. We feel strongly that we should have generally better safety profile than antisense. We feel like we should have a better dosing schedule than antisense. And then we'll see what the activity looks like with antisense versus RNAi. So far, we look at least competitive and maybe sometimes better.

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

We are administering two doses, the first dose followed by a second dose 28 days later. We plan to perform MRI-PDFF on day 71, and I believe we're looking at a second day, around day 169.

168, yes.

The scans occur every six weeks, and the initial dosing frequency is weekly. Depending on our observations, we might reduce the dosing frequency in the future. Since it's cancer, we aim to ensure that we can target any new cell division early, which is why we are starting with weekly dosing. We anticipate that the duration will exceed this for the cells that have already been dosed. However, considering the nature of cancer proliferation, we will begin with weekly doses.

And we have to pay out.

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 about how the inbound interest is from an alcoholic hepatitis endpoint, which again, can be fatal and very costly to the system, too.

Yes. Thanks. And that's an interesting — 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 that — so I appreciate you bringing up that patient group as one that we're 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 target, 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. At some point, it may be right to partner. But at this point, we're happy to go ahead and start those studies.

Yes. The main goal of this study is to understand the depth, duration, and dosage for patients. We don't have any reason to think these factors would differ between a NASH population and an alcohol population. Therefore, we believe the NASH population is the most suitable group for our biopsies to explore the relationship between dose and the depth and duration of knockdown. We think these findings will be applicable to the alcohol population as well. Thus, the choice between focusing on NASH or alcohol does not need to be made at this moment, and we believe this is the ideal group for conducting this study.

Our next question comes from Esther Rajavelu with Oppenheimer.

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

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 an 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. 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?

Yes. The ARO-ANG3 and APOC3, the press release indicates sort of...

Oh, you're talking about the upper respiratory tract infections?

Yes.

Yes. I believe these are likely to be no different from a placebo. In clinical trials, common side effects reported in patients receiving placebo often include headaches and respiratory infections. This pattern has been consistent across all our clinical studies, showing no distinction from placebo when the studies were unblinded. We're currently assessing the most frequently reported adverse effects we've encountered, but we don't have clarity on whether they differ from placebo yet. If I had to make a prediction, I would suggest that upper respiratory tract infections will not differ between the placebo group and the drug group. However, I cannot confirm this with certainty at this moment.

Got you. Regarding the data readout and its maturation, could you provide more specifics on the timing? Are you waiting for a specific group of patients, or are you planning to dose additional patients before releasing the data? Is this happening in the first half or the second half?

No, we wrote an abstract for ACC, but it was created about a week or two after AHA. At that time, we had very little data. Now, two months later, we have significantly more information. We have enough to prepare for this and can certainly create abstracts for future meetings. We prefer to present our data at academic conferences, which has generally been our approach, unless we’re in a situation like now where we have compelling data but lack a venue to present it in the near term. However, there are meetings coming up in the summer and fall where we could prepare interesting abstracts right now, and we will do so. We’ve found ourselves caught in a challenging position. The abstract we submitted for the late-breaker at ACC was tough because we had so little patient data at that point.

Got you. Okay. And then maybe one for Ken. Can you talk about how we should be thinking about OpEx, specifically R&D spend over the course of the year, with some of these CTAs and Phase I is getting started?

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 million to $30 million per quarter.

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

Yes, we expect that increase to occur, but we believe it will remain within that range for the rest of this fiscal year.

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?

Bruce?

I'm sorry. The timing of the biopsies includes an early biopsy that's about six weeks.

Six weeks.

And then we have the second and different cohort that has a later biopsy, which I believe is around 12 weeks or so. Do you remember exactly, Javier?

No, not exactly. No.

Yes, I'm sorry, it should be on our — at 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, 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.

I believe you've clarified this with your comments, Bruce. The reason for sharing an early glimpse of the data from ANG3 and APOC3 in the press release was that you wouldn't have anything to present at ACC, and you're unsure when the next scientific meeting will take place where you'll have data to share.

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

And your interpretation is right. As Bruce mentioned, we just didn't have gathered 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 can see that these drug candidates are working, at least as well as we expected, and frankly, a bit better than expected. And then you'll have a fuller data set later in the year.

Yes, frankly, that APOC3 data kind of blew us away.

Yes. 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.

Well, thank you very much, everyone, for joining us today, and 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.