Arrowhead Pharmaceuticals, Inc. Q2 FY2020 Earnings Call

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 over to Vincent Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead Vince.

Thanks, Buena, and sorry about the delay everybody. We were having some technical difficulties on the line. Good afternoon. Thank you for joining us today to discuss Arrowhead's results for its fiscal second quarter ended March 31, 2020. With us today from 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; Dr. Curt Bradshaw, our Chief Scientific Officer who will discuss our discovery, platform development and manufacturing efforts; and Ken Myszkowski, our Chief Financial Officer, who will give a review of the financials. In addition, James Hassard, our Chief Commercial Officer will be available during the Q&A session of today's call. This is the first earnings call without Dr. Bruce Given, who retired last week, since he joined the company 10 years ago. I want to start by thanking Bruce for all of his contributions to Arrowhead. Bruce developed strong relationships with the investment community over the years, and I'm certain that Javier, Curt and Jim will do the same. 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, Section 21E of 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 in the company's subsequent quarterly reports on Form 10-Q for additional matters to be considered in this regard, including risks and other considerations that could cause actual results to vary from the presently expected results expressed in today's call. With that said, I'd like to turn the call over to Chris Anzalone, President and CEO of the company. Chris?

Thank you, everyone, for joining us today. I want to start by expressing my gratitude to Dr. Bruce Given for his outstanding work in building our R&D organization and fostering a culture of innovation that will leave a lasting impact. Bruce's contributions are evident to everyone who knows him or has collaborated with him, and I am confident we have the right team in place to continue our success. Javier, Curt, and Jim are experienced executives who are enhancing their respective areas and have positioned Arrowhead for significant growth moving forward. Our goal in 2020 is to realize the potential of RNAi beyond the liver. We aim to obtain clinical proof-of-concept in the lung and solid tumors and quickly expand our pipeline similar to our hepatocyte-targeted advancements in 2018 and 2019. This could offer new treatment options for patients and enhance value for Arrowhead shareholders. While we are eager to broaden our scope, we are also focused on minimizing risks within our business. We have made excellent progress on this front. We are well-capitalized, and our TRiM platform is gaining validation. We have treated 273 human subjects with 570 doses in our clinical efforts, not including the patients treated by our partners, Janssen and Amgen. RNAi is increasingly recognized as a validated approach, we are targeting gene candidates that experts believe to be well-validated, and we are addressing significant medical needs. Additionally, we are pioneers in all of our clinical programs concerning RNAi. Although we have solid foundations, the looming risk is COVID-19, which influences how we view our business in the short to midterm. I’ll now give a high-level overview of our programs and their potential impacts from the outbreak. Starting with ARO-AAT, our investigational treatment for alpha-1 liver disease, we paused new patient screening for a minimum of 4 weeks in March for both the Phase II/III SEQUOIA study and the AROAAT2002 open-label study. We are now collaborating with sites and investigators to restart screening and enrollment. Patients already in the studies will continue their treatment as scheduled, and follow-up visits are also ongoing. Notably, we have not encountered unusual protocol deviations. Before the pause, we had fully enrolled the first cohort of the 2002 study, so we remain on track to collect six-month biopsies this summer and report the findings in the fall. We view this as a vital data point for our program and the broader field. While we do not anticipate observing histological changes after such a brief treatment period, it could provide early signs that the drug is effectively reducing the production of the mutant misfolded AAT protein, which we will measure by assessing the quantity of AAT monomer in hepatocytes. Moreover, comparing pre- and post-treatment levels of accumulated AAT polymer could offer insights into how rapidly hepatocytes can degrade and remove the polymerized protein, which is the underlying cause of liver disease in homozygous ZZ mutation patients. We believe these results are crucial for both us and the field, and we expect this to be the first of its kind. This exemplifies our substantial lead in developing treatment for alpha-1 liver disease and establishes us as thought leaders in the area. There are alternative RNAi approaches, yet none have reported tolerability and pharmacologic activity data, even in healthy volunteers. Additionally, there are other strategies to treat AAT deficiency aimed at correcting the mutant AAT protein for more efficient export from hepatocytes. However, we foresee significant challenges for these methods to demonstrate clinical efficacy in patients with liver-related AAT deficiency. The liver produces about two grams of AAT daily, and we doubt it is feasible to administer enough small molecule correctors to counteract that scale of production, thus some accumulation in the liver is probable. Aiming for the correction of 20% to 30% of the protein still implies a substantial amount of the misfolded protein remains, which can place considerable strain on the liver. Current data indicates that ARO-AAT nearly entirely suppresses liver production of the mutant Z-AAT protein, and we believe that demonstrating meaningful changes in liver histology may require roughly two years of treatment. However, how long would a corrector need to be administered if it leaves most of the Z-AAT protein in the liver? Eight years? Ten years? This presents a serious obstacle in a clinical trial context and reinforces our competitive advantage. Turning to our two cardiometabolic candidates, ARO-APOC3 and ARO-ANG3, ARO-APOC3 is being developed for patients with severe hypertriglyceridemia who have a history or high risk of pancreatitis. While some patients have a monogenic cause like familial chylomicronemia syndrome (FCS), we recognize a larger cohort has polygenic origins for their hypertriglyceridemia, referred to as multifactorial chylomicronemia (MCM), estimated at around 30,000 patients in the US. Both FCS and MCM can lead to severe consequences such as intense abdominal pain, recurrent pancreatitis, emergency visits, and even mortality, which significantly impacts quality of life and healthcare costs. We have chosen to focus on the MCM population and are drafting a plan for a potential pivotal study in these patients. We plan to meet with the FDA and EMA this year to discuss crucial design elements for a registrational study. Our Phase I/II study was designed to provide adequate data to enable a direct transition to a Phase III trial. We will have more clarity post-discussion with regulators, but we hope to initiate the pivotal study in the first half of 2021. We believe this will be a relatively short study, positioning ARO-APOC3 as our first marketable product. We are generating data from the Phase I/II study, which was nearly fully enrolled before the COVID-19 disruptions, though we have seen a slight delay in recruiting the remaining patients. We have already amassed a significant amount of data that we intend to release throughout the year and are optimistic that we may present a comprehensive dataset later this year. The ongoing disruptions in traditional medical meetings due to COVID-19 have created uncertainties regarding how we will communicate this data. We are committed to finding other means of presentation if medical conferences continue to be canceled. The early data has been promising, and we expect that trend to persist. As we indicated in our last conference call, we have observed about a 95% reduction in circulating triglycerides in hypertriglyceridemic patients after just one dose of ARO-APOC3, which is remarkable. These patients present with triglyceride levels in the thousands, and such a reduction could be significant for them. We are further along with ARO-ANG3, which is being pursued as a treatment for mixed dyslipidemia. This patient group often has elevated triglycerides and LDL cholesterol, increasing their risk for atherosclerotic cardiovascular disease. Evidence strongly indicates that both triglycerides and LDL play roles in that risk. This is a prevalent condition affecting around 10 to 15 million people in the US alone, and current treatments fail to address it adequately. We envision ARO-ANG3 achieving a more substantial reduction in triglycerides compared to existing therapies, along with a notable decrease in LDL through non-LDL receptor-mediated pathways, potentially exceeding the efficacy seen with statins and PCSK9 inhibitors alone. We shared early patient data on ARO-ANG3 during our last call, which I found impressive. We noted approximately an 80% reduction in triglycerides and a 40% decrease in LDL following just one dose of ARO-ANG3. Importantly, all patients were already on LDL-lowering medications like statins and PCSK9 inhibitors. The patient population we target is substantial, and any pivotal study demonstrating a reduction in cardiovascular events would also need to include a large cohort. Many experts in the field are advocating for new treatment options for mixed dyslipidemia, and we find the mechanism of ANGPTL3 reduction very promising. We are currently clarifying the regulatory and development pathways for this indication. Given our focus on this prevalent population, we may need to conduct a Phase IIb study instead of advancing directly to a pivotal study, as we could with ARO-APOC3. We aim to engage with the FDA this year and hope to initiate the Phase IIb trial in the first half of 2021. The ARO-ANG3 Phase 1/2 trial is progressing well, even amidst COVID-19 challenges. The study is fully enrolled, so we don’t foresee significant delays as we continue patient follow-ups and data collection. We expect to report a complete dataset later this year and will also seek opportunities to share data subsets throughout the year. Similar to ARO-APOC3, we will explore alternative methods for data presentation if medical meetings remain canceled. Now, moving to our newest clinical candidates: ARO-HIF2 for clear cell renal carcinoma, ARO-HSD for liver diseases, and ARO-ENaC for cystic fibrosis. We filed an IND for ARO-HIF2 in December, and we expect to begin enrolling patients in the Phase 1 study shortly. One site is now open for screening and enrollment, and we expect to dose the first patients this quarter. The start-up has taken longer than anticipated, partly due to COVID-19 delays affecting contracts and initiation at many academic centers. We anticipate having proof-of-concept data for this candidate and the tumor-targeted TRiM platform this year, although timing might push any public announcement to next year. Success in the current Phase 1 study means collecting biopsies from metastases, and if we achieve significant Hif2-alpha knockdown, it will affirm that we're on the right path. Given that Hif2-alpha is a validated target for roughly 80% of clear cell RCC patients with the von Hippel-Lindau mutation, we hope ARO-HIF2 could be beneficial for them. Moreover, because our targeting strategy aims to work across various solid tumors, seeing Hif2-alpha knockdown would suggest a potential for a broader solid tumor franchise. Upon establishing clinical proof-of-concept for Hif2-alpha knockdown, we aim to swiftly expand into new solid tumors and targets, viewing this as a scalable and efficient value creation strategy. ARO-HSD began dosing in its Phase 1/2 study in March, and we have completed the first cohort. We received a nod from the safety monitoring committee to escalate to the next dose. Enrollment for the second cohort was paused due to COVID-19 restrictions in New Zealand, but we expect to resume enrollment for healthy volunteers soon and patients shortly thereafter. We are collaborating with the site on plans to restart recruitment and consider this a minor delay not expected to affect the program's overall timeline. For ARO-ENaC, we submitted a CTA last month to launch a Phase 1/2 study in both healthy volunteers and cystic fibrosis patients. It is early to assess potential COVID-19 delays, which will depend on developments in the upcoming months. We believe we can generate safety and activity data for the compound and the pulmonary platform, although we cannot guarantee having enough data ready by key deadline dates for scientific conference presentations this year. I want to briefly touch on the cystic fibrosis (CF) patients who could benefit from this program. While treatment options for CF have improved over the years, there remain opportunities to aid those who do not respond to conventional therapies, as well as to enhance the outcomes of those who do. ARO-ENaC targets the epithelial sodium channel (ENaC), which is genetically validated, showing that CF patients with heterozygous ENaC knockouts often experience mild CF or no significant lung complications many years into life. This suggests that therapeutic inhibition of ENaC could provide benefits for all CF patients, regardless of genotype. The initial study will provide insights on tolerability and efficacy in the targeted patient population, representing a potentially pivotal moment for both ARO-ENaC and our broader pulmonary platform. If the results support further development, we hope to initiate a Phase 3 study in 2021 and expand our pipeline with candidates targeting other underserved pulmonary diseases such as COPD, asthma, and pulmonary fibrosis. I am pleased to announce we have completed initial discovery and optimization work on our second lung-targeted program and have nominated ARO-Lung2 as our next candidate. While we are not discussing the target at this time, it has been developed to address COPD patients. We're encouraged by the data from this program and ARO-ENaC and are eager to extend our pulmonary franchise. Our current efforts involve manufacturing and conducting IND-enabling toxicology studies on ARO-Lung2 and we aim to submit a CTA in the first half of 2021 to initiate first-in-human studies. Previously, we anticipated this occurring by year-end; however, COVID has slightly delayed development, which we expect will push back first-in-human studies by one or two quarters. We have previously expressed our excitement about establishing a rapidly growing pulmonary franchise, and that effort is starting to materialize. Based on studies in rodent, primate, and sheep models over several years, we have high confidence in the tolerability and efficacy of our inhaled delivery in humans. The lung is a target-rich area that presents numerous opportunities for addressing various indications in creative ways. Therefore, we perceive this as a significant opportunity for patients and a major value driver for our shareholders. In addition to CF, COPD, asthma, and pulmonary fibrosis, inquiries have been made about the application of inhaled TRiM to coronavirus. While we have not shared details earlier, we can now confirm that we have an active program targeting the novel coronavirus responsible for COVID-19 and potentially other future pulmonary pathogens. Further details on this program or strategy remain confidential, but we wanted to provide this update. We aim to apply the same innovative approaches we utilized in transforming the treatment of Hepatitis B. Everyone in biopharma and drug development plays a role in enhancing global health, and Arrowhead is committed to being part of that effort. Several factors instill confidence that we have the potential to make a meaningful impact against the current novel coronavirus, as well as other coronaviruses and pulmonary pathogens in the future. First, we are leaders in RNAi targeting the lung with a clinic-ready inhalation program. Second, history shows our rapid progress from concept to clinic is faster than any RNAi or other biotech company. Lastly, we are the leading RNAi firm in antivirals and are recognized thought leaders in HBV. We will keep you updated on this program's progress. Finally, I want to mention our muscle-targeted program. While we have not yet disclosed the initial indication or gene target of our first clinical candidates, we view the indication as having significant unmet medical needs. The gene target is well-validated, and we expect to be the first RNAi company in this area. Similar to our ventures in solid tumors and pulmonary health, we see our ability to address skeletal muscle as a leading edge. Once we obtain clinical proof-of-concept, we expect to quickly diversify our pipeline into new indications and gene targets that can be accessed via muscle delivery. We are on track to file a CTA by the end of 2020. I believe we have unparalleled reach into a variety of indications, unmatched speed to the clinic, and an unmatched depth of pipeline for a company our size. Our partner programs also continue to progress well. Amgen announced in its recent quarterly call that it anticipates beginning a Phase II study with AMG 890 in the latter half of this year. Janssen is actively conducting its first two Phase IIb studies with JNJ-3989 targeting chronic HBV, and we are collaboratively pursuing three other undisclosed targets. Although COVID-19 has introduced new challenges, Arrowhead is adapting. We are excited about our promising new medicines that have the potential to benefit countless patients. We are thankful that the current situation has led to only minor delays in our development programs and that we are sufficiently resourced. I continue to be inspired by our employees, whose dedication, work ethic, and innovative spirit have remained strong during these trying times. With that overview, I would like to hand the call over to Dr. Javier San Martin.

Thank you, Chris. I'm happy to join the call and hope I can provide valuable results to everyone listening today. Chris gave a good overview of the clinical development programs and I will provide some further details on the status and study designs. Let's begin with ARO-APOC3, our candidate targeting apolipoprotein C3 being developed as a potential treatment for patients with hypertriglyceridemia. As Chris mentioned, we believe this may be a good treatment option for MCM patients that have severely elevated triglycerides, often in the thousands of milligrams per deciliter. These patients can experience recurrent abdominal pain, are at a high risk for pancreatitis, and in some cases can require frequent visits to the ER and be admitted for multiple-day hospital stays. In the most severe cases of pancreatitis, these attacks can even be fatal. In addition, these patients live with a very restricted diet that becomes difficult to maintain, and even if they comply, they still can have extremely high triglyceride levels. These patients have a severely impacted quality of life and are desperately in need of better therapies that can achieve deep and durable reductions in triglyceride levels, thereby reducing the risk of pancreatitis and allowing for a better quality of life. As Chris mentioned, we previously announced some preliminary results in this patient population, but I want to review them today because they were very encouraging. After a single dose of 50 milligrams of ARO-APOC3 in patients with severe hypertriglyceridemia, we demonstrated reduction of around 95% in circulating triglycerides. We would expect this type of reduction to have substantial clinical benefits, particularly in patients with a history of pancreatitis. We are currently conducting our Phase I 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 adult healthy volunteers and the multiple-dose portion includes patients with severe hypertriglyceridemia. 71 subjects have been enrolled and dosed in this study. We still have a few patients to go in order to reach the planned enrollment. We are working with investigators and sites to ensure that we reach this planned enrollment as soon as possible. We look forward to the opportunity to present additional results from this study later in the year. Our other cardiometabolic candidate is ARO-ANG3 targeting angiopoietin-like protein 3 or ANGPTL3 and is being developed as a potential treatment for patients with mixed dyslipidemia. This program is also moving forward efficiently. ANGPTL3 is a regulator of lipid and lipoprotein metabolism. Inhibiting ANGPTL3 should result in lower triglycerides and LDL-C and potentially provide improvements in other lipid and metabolic markers. Our data in animal models and our early clinical data strongly support that. For example, at doses of 200 or 300 milligram, maximum mean triglyceride reductions in the high triglyceride cohort approach 80% and maximum mean reductions in LDL cholesterol in the various high-LDL cohorts are averaging around 40%. These patients were already on maximal medical care consisting of statins plus or minus ezetimibe with PCSK9 inhibitors in some. Lowering both triglycerides and LDL to this extent was an exciting result and we think could serve to hit multiple cardiovascular risk factors simultaneously. The current clinical study is a Phase I/II 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 multiple-dose portion includes normal volunteers and patients with various types of dyslipidemia. This includes patients with hypertriglyceridemia, patients on a stable LDL treatment regimen, but with persistently elevated LDL cholesterol, patients with heterozygous or homozygous familial hypercholesterolemia, and patients with non-alcoholic fatty liver disease. We have enrolled and dosed 93 subjects in this study and have reached full planned enrollment. The data for both ARO-APOC3 and ARO-ANG3 strongly support further development, and we intend to find appropriate ways to share the data publicly this year. Earlier, Chris discussed some of our future plans for ARO-ANG3. It seems likely that a Phase IIb study that assesses various dose levels and dosing intervals would be a smart addition to our data package before embarking on a Phase III Cardiovascular Outcomes Trial. This will give us more certainty on the magnitude of treatment effect in a larger dataset, allow us to select the right dosing regimen, and also build our safety database. We are developing our strategy and plan to engage with regulators this year to discuss the development and regulatory path. ARO-HSD, our new investigational candidate targeting HSD17B13 for the potential treatment of alcohol and/or non-alcohol-related liver disease, is another exciting program that has made progress recently. We see this as the most intriguing target for NASH at the moment. Population-based genetic data have shown strong protection against NASH, cirrhosis, and alcoholic hepatitis and cirrhosis in humans that possess loss-of-function mutations in the HSD17B13 enzyme. We are eager to see how that translates therapeutically in patients that receive ARO-HSD treatment. Our current clinical study is a Phase I single- and multiple-dose-escalating study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamic effects of ARO-HSD in normal healthy volunteers as well as in patients with NASH or suspected NASH. Additionally, exploratory objectives include assessment of various measures of drug activity using liver biopsy. The first cohort of volunteers received their dose and tolerability data was collected. The DSMB reviewed those data and recommended continuing dose escalation. The study will resume enrollment shortly once some of the COVID-19-related restrictions are eased in New Zealand. We expect to begin enrolling the first cohort of NASH patients in the multiple-dose portion of the study after the review of safety parameters from the second cohort of healthy volunteers. This parallel design strategy makes the time to patient activity data far shorter than a traditional sequential Phase I Single Ascending Dose to Phase II Multiple Ascending Dose design. It’s another innovative way that Arrowhead operates. Lastly, I want to give an update on 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. There are two ongoing clinical studies: the potentially pivotal SEQUOIA study and the open-label 2002 study. We voluntarily put both on a four-week pause for new screening and enrollment due to concerns around COVID-19. Many alpha-1 patients have compromised lung function and may be at increased risk of severe illness in the event of COVID-19 infection. Continuing to enroll new patients might have also jeopardized the integrity of study data as patients could have difficulty completing study visits and could miss doses or relevant study-related procedures as a result of travel restrictions or concomitant illness. We are now working with participating sites to restart screening and enrollment where and when it is prudent to do so. We are still on schedule to collect six-month biopsies for cohort one of the 2002 studies by the end of the summer. We will then work on processing and analyzing results and subsequently plan on sharing those data in an appropriate venue. This may be the first liver biopsy data of patients treated with any therapy designed to address alpha-1 liver disease. We will be looking intently to learn what happens to Z-AAT monomer levels and accumulated Z-AAT polymer in addition to other possible measures. I will now turn the call over to Dr. Curt Bradshaw, Arrowhead’s Chief Scientific Officer. Curt?

Thank you, Javier, and good afternoon everyone. I’m pleased to meet you all virtually and hope to connect more when things ease up a bit. I want to give a little color on what we're working on in our early programs and how we're addressing resource needs in research and manufacturing. First, from a discovery standpoint, we have a lot of programs in active development and more in the planning stages. As Chris mentioned, ARO-Lung2 has already been nominated and we are now in the manufacturing and IND-enabling study phase for that program. We have been highly encouraged by our non-clinical results with ARO-ENaC and Lung2, so we are moving as quickly as possible into new targets that leverage our success with the pulmonary TRiMTM structure. This includes some ideas and initial work on pulmonary infectious diseases like the novel coronavirus that causes COVID-19 and other corona and non-corona viruses where knockdown of a target in the pulmonary epithelium may be helpful. The idea of a long-duration intervention, which RNAi generally has demonstrated, gives some unique advantages over other approaches. Our inhaled delivery platform has been developed and optimized over the last several years, so we think we have a significant leg up over other potential RNAi solutions. Moving on to our other more advanced preclinical efforts. In the liver, we are working towards several new programs. Importantly, these include new targets as well as possible dimer or bispecific programs designed to silence two gene targets with a single drug candidate. In muscle, we have one lead program and another two that are in active development but earlier stage. So, how are we building and allocating resources to support these plans? One of the positive aspects of being a company built around a single mechanism and a single scalable platform is that learnings from one program tend to inform the development of others. This is absolutely true for the Arrowhead research team. We have not needed to drastically increase headcount and are only selectively adding when specialized expertise is needed. For example, we are adding a few folks to support the growing pulmonary area. There will be some additional needs for some of the new cell types we are working on. This is partly why the new San Diego R&D facility, which we opened last month, is helpful. It allows us to tap into additional skill sets in one of the country’s premier biotech hubs. It has also expanded our capacity for preclinical models so we are able to do more of the early work in parallel. Lastly, I want to touch on our manufacturing capabilities and what we are seeing in this COVID-19 environment. We are monitoring the situation very closely because we never want drug manufacturing to delay a clinical study. So far, we have not seen any supply disruptions. We have not encountered any material delay in receiving raw materials needed for the manufacturing process, and have not seen any contract manufacturer delays either. We utilize a combination of internal GMP manufacturing and external CMOs. We typically manufacture all material for preclinical tox studies and Phase I clinical studies in-house and then use CMOs for Phase II and beyond. We maintain redundancies both internally and with various CMOs in different geographies to guard against the risk of supply disruptions. So to summarize, we think we are probably in a good position to supply the needs of our clinical development team now and into the future, even with the uncertainty of COVID-19. I will now turn the call over to Ken Myszkowski, Arrowhead’s Chief Financial Officer. Ken?

Thank you, Curt. As we reported today, our net loss for the quarter ended March 31st, 2020 was $19.8 million or $0.20 per share based on 101.7 million fully diluted weighted average shares outstanding. This compares with net income of $23.9 million or $0.24 per share based on 98.1 million fully diluted weighted average shares outstanding for the quarter ended March 31st, 2019. Revenue for the quarter ended March 31st, 2020 was $23.5 million compared to $48.1 million for the quarter ended March 31st, 2019. 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. So, 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 toward fulfilling our performance obligations, primarily overseeing the completion of the current Phase I/II clinical program. We expect the remaining $33.2 million of deferred revenue to be recognized in this calendar year. Any additional milestones achieved with Janssen or Amgen will be additive to this projection. Total operating expenses for the quarter ended March 31st, 2020 were $45.8 million compared to $26.1 million for the quarter ended March 31st, 2019. This increase is primarily due to increased non-cash stock compensation expense. Stock compensation expense has increased because the valuation of our new stock options and restricted stock awards granted has increased with the growth of our stock price. Additionally, stock compensation expense increased due to the timing of the achievement of certain performance-based awards in each period. The increase in total operating expenses was also driven by increased clinical trial costs, as our pipeline of clinical candidates has increased and increased personnel costs both in R&D and G&A as our headcount continues to grow. Net cash used by operating activities during the quarter ended March 31, 2020 was $27.6 million, compared with net cash used by operating activities of $19.6 million during the quarter ended March 31, 2019. The increase in cash used by operating expenses during the quarter is consistent with the increase in our cash operating expenses. We estimate our near-term cash burn to average $30 million to $35 million per quarter. Turning to our balance sheet, our cash and investments totaled $498.2 million at March 31, 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 March 31, 2020 were 101.7 million. With that brief overview, I will now turn the call back to Chris.

Thanks Ken. COVID-19 has caused everyone to rethink how they operate in their personal and professional lives. We at Arrowhead are not immune to that. We are committed to protecting our employees, business partners, and patients who participate in our studies and have taken decisive action toward that goal. From an investment standpoint, we are encouraged that the outbreak has not caused wide-scale disruptions to our business, and at worst, we have seen some minor extensions to our anticipated development timelines. Importantly, we are excited to be leveraging our leading inhalation franchise and actively working on treatments for the current novel coronavirus as well as future pulmonary viruses. This is directly in our wheelhouse, and we are confident that we have much to offer. In addition, we believe 2020 holds great potential to be an important year for the company in terms of expanding our reach into new indications and continuing to validate the TRiM platform in hepatocytes, solid tumors, the lung, and skeletal muscle. We intend to have readouts across most of our programs, and we expect these to be important data. We also expect to start to gain clinical proof-of-concept for our extrahepatic platforms, begin the pipeline expansion phase of our growing pulmonary platform, expand the TRiM platform to new opportunities, engage the regulators to gain clarity on our plans to move our cardiometabolic candidates into pivotal studies, and may even have a breakthrough or two to discuss. We've had equally ambitious plans in the past and we think we have a pretty good track record of meeting or exceeding those expectations. Thanks again for joining us today. I would now like to open the call to your questions. Operator?

Yes, sir. Your first question comes from the line of Maurice Raycroft. Your line is now open.

Everyone, thanks for taking my questions. And just wanted to add a quick congrats to Bruce and best wishes and next steps in retirement. For AAT, you mentioned you don't expect to see histological changes at six months. Just wondering if that's based on preclinical data, modeling estimates or something else?

Javier?

Yes. Sure. So both. One of the things that we've been doing is looking at all the preclinical data. This is a huge opportunity for translation drug development so we're learning a lot about that. And what I would say is the two major parameters that we aim to see results earlier: one is the amount of monomers and polymers, and second is, inflammation. So we're focused on those two parameters as the earliest possible response rate, but as you know, and looking at other diseases that may behave similarly, in order to see definitive finite histological changes particularly around fibrosis, it might take longer. This initial biopsy is that we hopefully may present later this year at only six-month treatment for the first four patients in cohort one in Study 2002.

Got it. You mentioned inflammation. Will you be examining specific inflammatory biomarker data? Also, for the serum biomarker, do you plan to provide that information? Could you remind me what types of serum biomarkers you will report on? Do you expect those to correlate with the liver data?

Sure. So the key term biomarker is AAT, of course, it's the mutant and total protein and we're waiting on that. We are going to disclose that data when we have it. So that's number one. And with regard to inflammation, we're working on that. As we speak we're trying to define a way to quantify inflammation in a way that we can validate that in being a reliable approach to compare baseline to endpoint and compare between treatment groups. So this is a work in progress. And what I can tell you is, we're planning to go to the FDA with our proposed approach to this primary endpoint that will be mainly focused, as I said in protein accumulation and inflammation. So a number of things are going into that. I can't go into a lot more detail now. But as I said later in the year, we will disclose more specifics around the inflammation component of this core system that will be used as a primary endpoint.

Got it. That's very helpful. And I may have missed this, but for the updated development plans for ANG3 and APOC3, can you say if these updates are based on preliminary feedback from FDA?

We're going to the FDA or sending the FDA briefing document for APOC in about three weeks to a month from now. We already request the meeting. We're going to have an interaction with them and it might not be a face-to-face meeting, but it would be either a call or a written discussion with them. So that is with regard to APOC. For ANG, we are going to go to the FDA approximately in August, September of this year with a similar approach. Chris already mentioned the two different plans with APOC. We are going now with a pre-IND proposed in a Phase 2/3 study with the objective to have a registration study in the MCM population. With ANG, as you know, we're going to propose a Phase 2b study to define the dose, the dose regimen, and the overall study design for a final clinical outcome study of cardiovascular outcome trial, so both interactions this year about two months apart.

Got it. That's helpful. And as you're preparing those briefing documents, do you have any initial thoughts on the trial sizes and timelines or any other details on the trials that you can provide?

Yeah. So for APOC we think it's going to be the first study about 300 patients. We don't need 300 patients actually to show statistical significant difference in triglycerides level by any stage, but we want to enlarge the study to have sufficient safety data set so the agency will be hopefully okay with this one Phase 2, Phase 3 study for this first indication. For ANG, it's a Phase 2b study. We still need to figure out exactly. We're going to study more than one regimen and definitely more than one dose level. We're still waiting for the final data from the current study in order to define that precisely. But a Phase 2b study is going to be in that same range as I said for the APOC3.

Great. Okay. Thank you very much and I’ll hop back in the queue.

Your next question is from the line of Ted Tenthoff. Your line is now open.

Thank you very much guys, and thanks for taking times out and I’m glad everyone’s doing well. I wanted to get a sense for what could be next steps in terms of APOC3. Is this something where you really do think you could move rapidly to a pivotal study for targeted patients? And how do you balance the development plan between more targeted orphan diseases with higher trig levels versus a broader population? Thanks so much.

Well, that's a great question. And what I can say is we're working on that right now. I think we have a good case because the goal of treatment for this patient is really to reduce the risk of pancreatitis, which as you know is a very severe condition. And yes, the patient in the rare, very severe FCS population at a very high risk of pancreatitis. But those patients that are MCM and have a past history of pancreatitis also have very significant rates. Also, some of those patients have very extreme levels of triglyceride level. So we're working together with the agencies to define what is the right patient population that will benefit from this intervention. And again, the goal of therapy is to reduce the risk of pancreatitis, so we're going to define a population that is at risk of that condition.

Thank you for your question, Ted. There are several factors that make this drug candidate particularly interesting to us. First, it seems to be a very potent option. Based on the data we've observed, after administering just a single dose of 50 milligrams, we are seeing a 95% reduction in triglycerides among hypertriglyceridemic patients. That result is truly impressive and encouraging. Secondly, we appreciate the potential applications for this treatment. Within the MCM patient group, there is a distinct population that is not ultra-orphan, consisting of around 30,000 patients who suffer from severely impaired quality of life and pose significant costs to the healthcare system. We believe we can make a meaningful impact for them. We anticipate that the pivotal study could be relatively brief and not require a large sample size. However, as we continue to expand our dataset, we may consider conducting follow-up studies involving larger populations. We are quite confident that elevated triglycerides are an independent risk factor, and our ability to effectively manage triglycerides with APOC3 represents a powerful opportunity. While our immediate focus is on MCM, I wouldn't be surprised if we pursue additional studies to broaden our scope in the future.

Chris, if I may add another thing. So I'm a newcomer to the company and one thing that is really impressive about this, when you look at the APOC study, there are a number of different populations from normal all the way to patients with severe hyperlipidemia. And the magnitude treatment effect is consistent and the response rate is 100%. So you don't see that very frequently. And so that I think supports the idea that we can expand from population to population because the underlying problem is the same and the magnitude of the treatment effect is also very consistent.

That's great. And one real quick follow-up, we've seen certainly the potency of siRNA as an antiviral mechanism. And while, I'm not looking to jump on the bandwagon here, have you guys considered developing siRNAs against SARS-CoV-2, either in a partnership or with the government or anything along those lines? Thanks so much.

Yes. We have an active program that we discussed regarding the current novel coronavirus and potential future outbreaks. We believe we have a significant role to play here. We consider ourselves leaders in the RNAi field for antivirals, and our experience with HBV has been transformative in that area. Additionally, we have been focusing on lung delivery for several years, which has required considerable effort. We are optimistic that we will develop a solution that is both effective and well tolerated, offering long-lasting results. We are excited about this ongoing program and anticipate sharing more updates throughout the year.

Great, it's helpful. And thanks for that color. And then, stay safe and stay well.

Thanks Ted.

Your next question is from the line of Mani Foroohar. Your line is now open.

Hi. Good afternoon, everyone. And this is Rick on the line for Mani. Congrats on all the progress. First I wanted to discuss the ENaC program. So if you compare this to the Phase I trials of ARO-ANG3 and ARO-APOC3, are you able to assess target knockdown and healthy volunteers in those studies, given that those are proteins that are expressed in the serum? Will there be an opportunity or anything to look into the clinical studies of ENaC? So you can gauge target engagement in the healthy volunteers, or is the first readout of potential efficacy going to be the readouts in cystic fibrosis patients?

We won't be looking at ARO-ENaC in healthy volunteers. The answer is no. Instead, we will have patients with cystic fibrosis in this same study, and we're measuring pharmacodynamic parameters in Phase 1, which is minimal. We have a sizable study that we enrolled relatively quickly. This is being conducted in New Zealand, South Korea, and also in Hong Kong. That addresses the first part of your question, but I missed the second part.

I think that's it.

Great thanks. And I did have a follow-up question. So it sounds like for the ARO-ANG3 program you're going to be conducting a Phase II trial, in addition to a larger cardiovascular outcome study. So, can you maybe share your most current thoughts on potentially partnering this asset versus developing it alone? And if that is something that's on the table at what stage of the development would make sense to start looking for a partner?

We believe both ARO-APOC3 and ARO-ANG3 are very promising targets, and we have strong drug candidates for each. Additionally, we are well-funded and capable of advancing these programs significantly in clinical trials. We are open to discussions but currently do not feel pressured to enter a partnership. If the right opportunity arises, we are willing to consider it, but we prefer to maintain independence for the time being, as we believe these assets are too valuable to enter into a partnership that doesn't align perfectly.

Great thanks for taking my questions.

Yeah. Thank you.

Your next question is from the line of Alethia Young. Your line is now open.

Thank you for taking my questions. I hope you're all doing well. I have a couple of questions. First, you seem to have a wealth of pipeline items. Given the current situation with planned trial delays and adjustments, does this affect the prioritization of your pipeline in any way? Second, regarding AAT and the biopsies, you mentioned feeling confident about the summer timeline. Is there a potential grace period if those timelines were to shift, or any buffer at that point? Lastly, I'm curious about your level of confidence with the COPD pipeline in light of what you're seeing with ENaC. I'd like to get a better sense of your increased confidence regarding the long-term potential you have there with emerging developments.

Okay. First, regarding whether COVID has caused us to shift our priorities, the answer is no at this time. While COVID has impacted our timelines to some degree, it hasn't materially affected them, and we are continuing business as usual for now. It has presented us with a new opportunity to explore coronaviruses more broadly, particularly the virus responsible for COVID-19. We believe we have valuable expertise in lung conditions and antivirals that will contribute to this effort. This has increased the workload for our nonclinical teams, but everyone is aligned and progress on our other programs remains steady. So, to summarize, COVID has not altered our pipeline priorities. Next, regarding the AAT biopsies scheduled for the summer, there is a possibility of delays for one or two participants, but we remain optimistic about the enrollment status. Even if some biopsies are postponed by a few weeks, we don't anticipate it will affect our data significantly as we expect sustained activity from the drug over many months following a single dose. We are eager to analyze the biopsy outcomes, which will provide new insights into liver conditions after reducing AAT production. Lastly, on our confidence with the COPD program, ARO-Lung2, we have been encouraged by our nonclinical data across various animal models, indicating that we are on the right track. Additionally, the lung presents numerous validated gene targets, which also applies to COPD, giving us a favorable biological landscape. We believe this year will be significant for our pulmonary franchise, which we consider a key value driver moving forward, and we are taking meaningful steps to expand this area.

All right. Thank you very much.

Sure. Thanks.

Your next question is from the line of Mayank Mamtani. Your line is now open.

Thanks for taking my questions and great to have Javier and Curt on the call and appreciate the efforts navigating the current environment. Just a quick follow-up on the AAT, relative to sort of what we've heard from you before, maybe could you just call out the bookend kind of scenario that you think? And again, assuming this is still the lowest dose that you're working within the open-label study and there is the optionality to grow higher on the doses with the longer-term study. So could you just lay out what do you expect to see there in the different outcomes?

So Mayank, just so I understand, so you're asking what we expect to see in the 6-month biopsy data for the open-label study?

Yes, I’m interested in understanding the expected outcomes based on the serum protein and biopsy data. I'm curious if you are still working with a lower dose in the study and if you have plans to explore a higher dose as well. Can you explain how you view the impact of the broader study?

Yes. So we are now using 2002 for that. What we are doing, as you probably know, is the 2001 study, the potential patient study has two parts. Part A is the one where we're assessing three different doses for the first 36 patients. At the end of that part, we're evaluating the PD response and safety, and the DSMB will help to select. So the rest of the study will be enrolled. And when we get to Part D, which will be what I would call the Phase III or the registration part of that study, that will go on with just the decided or the defined final dose. But based on the Phase I study, all those have a very profound suppression of AAT. So I'm really interested to see how all three doses from the 2001 study will look like. But again at the end of those first 36 patients we're going to look at the data and make the call to continue on the final Phase III part of the 2001 study.

And Mayank, the data that we're talking about reporting publicly was just from the open-label study. We won't be reporting any of the pivotal study data publicly until it's complete.

Understood. And then, for ANG3, among the 93 patients, how many have NAFLD? Also, what is the median follow-up time you expect to have in the next update?

The NAFLD patients are about eight patients approximately, give or take one or two. By when we're going to have the data probably at the end of this year. In that particular patient population, we're also on top of the metabolic profile we're doing MRI and that data may be available at the end of the year maybe Q1.

So, assumed mixed lipidemia study would only focus on the lipid part of the metabolic syndrome disease? Is that right the Phase IIb study?

Yes. So we are considering the Phase IIb study for next year with a focus on mixed lipidemia. However, it's important to note that we have not yet discussed this with the FDA. Currently, we are not planning to include more patients with metabolic syndrome since we lack data on insulin sensitivity and liver fat. We know that this drug is effective in reducing triglycerides and LDL in a way that does not rely on LDL receptor mediation. That's our current direction, and while additional considerations could be valuable, this is our main focus for now.

And it's likely to that populations, some of them will have metabolic syndrome of course.

Great. Appreciate the clarification. And last question on the HIF2-alpha program. I understand these are obviously cancer patients so enrollment may not be as impacted. Just curious in your guidance for the update by the end of the year as proof of concept what do you expect in terms of number of patients or in follow-up you could have then?

Yes, we don't want to make any predictions at this point because it's still early. We have only one site open and haven't started dosing patients yet. Please give us some time to begin enrolling patients and assess the situation. To clarify regarding the proof of concept you mentioned, we should have an internal understanding of its effectiveness by the end of the year. However, I can't say yet whether we will have enough data to submit an abstract for public presentation at that time; it might be tight and the outcomes of those conferences are uncertain. Overall, we feel optimistic about our current position, although progress has been slower than anticipated due to COVID affecting our site openings. I expect we will begin dosing patients this quarter and will assess the results from there.

Can you remind us about the dose escalation and the doses you're considering, and if that information has been disclosed yet?

It's 3, 9, and 13 mg per kg weekly IV.

Single dose?

Weekly. This is week two, right? Yes. 3, 9, and 13 mg per kilogram weekly IV.

Thank you. I appreciate you taking my questions.

Sure.

Your next question is from the line of Madhu Kumar. Your line is now open.

Thanks for taking my questions. So I'm curious about the APOC3 program, the focus on multifactorial chylomicronemia syndrome. How does targeting that population affect the kind of endpoints you might look at? So obviously, there's evidence that multifactorial chylomicronemia syndrome has a lower pancreatitis incidence. It has an acute pancreatitis incidence in FCS. It has a higher incidence of cardiovascular complications. So do you plan to look at both as endpoints, or how do you think about that?

Well, so that's a great question and we've been thinking about that quite a bit. What I would say is the number one study would be to look at triglyceride levels. And we want to have a conversation with the agency. There is precedent for that. This is not only the first drug approved to treat patients with about 500 milligrams per deciliter without specifically clinical outcome as an endpoint. Yes, the goal of therapy will be to reduce pancreatitis risk and the risk of pancreatitis in this population vary. You have people with very high risk and very high triglyceride levels, and you have people with lower rates. So we're working on the study design because we do want to select a population that will be at excess risk compared with the average hypertriglyceridemia patients to be part of the study. So this is an important discussion that we have to have with the FDA. We're going to do this within the next couple of months. And so we'll see how it goes. But of course in the future, I think, APOC has huge potential for the cardiovascular outcomes and something that I think we need to think. About I don't know, Chris you want to comment on that?

No. I think it's good. For 2021 think of it as likely focused on the MCM population and then going forward we can consider broadening that out at some point. We'll see.

Okay. And then for an MCM trial would you restrict other concomitant triglyceride-lowering medications, or would you allow them to kind of stay on concomitant medications?

We will allow them to stay on concomitant medication. The data we have from the Phase I study in those patients where we have concomitant medication is extremely good. You can't tell the difference. So I think we will probably allow for other medications that people are starting to – so any other thing for this lipidemia they will remain on it.

Okay. And then stepping back, you've mentioned several times in the prepared remarks the idea of finding an appropriate venue. So kind of like push comes to shove and kind of there's a prolonged dearth of medical conferences for presenting just kind of assemblage of clinical data you guys are building over this year. Would you plan to kind of do something internally or how are you visioning that?

Yes. Thanks for the question. So yes we are – look we're committed to pushing data out where we can. As you know Madhu, we've been really good I think not press releasing data generally but presenting it at appropriate conferences. We just think got the right way to go and so that's obviously our preference. Should these conferences continue to be disrupted then we will find other ways to do it. And that could via press release, via webinar, what have you. I'll give you an example. We're still submitting abstracts, of course. In fact, we have approval we've got abstracts approved from both the APOC3 and ANGPTL3 at... The National Lipid Association Conference again both those as well as the European Society of Cardiology. I now turn the call over to you. Thank you for your questions.

Good afternoon, guys and thank you so much for taking my question. Congrats on an exciting quarter. I was curious about your new facility in San Diego. When do you expect it to be fully staffed and running? Will it focus on a specific area of development such as pulmonary and what benefit or advantage are you looking to gain with it? For example, will it help increase the number of drugs to clinic on a yearly basis?

Curt, do you want to address that at least?

Certainly that – I mean it's not of course, if we had chosen our timing it's unfortunate in terms of the current environment, but we are staffing it today and we're in the early stages of filling the facility up. And really, the intention there is yes to increase our capacity in our drug pipeline ultimately, and it also just adding to scientific expertise in the California from California biotech. So there's a lot of skill sets that we're looking for to increase both our throughput and our sophistication in terms of some of the newer programs that we have underway.

Yes. Look, as you know we've got this platform that is so flexible. And now that we've gotten outside delivery, we can go after so many indications, so many gene targets that it's incumbent on us to maximize that value, and while Madison has been great and will continue to be great. And we've got a phenomenal team there. We've had no problem staffing that up and biting that out. I don't think there's any one single area anywhere where you can attract all the talent you want with a platform that is flexible and that is broad. So it just makes sense for us to open up a second hardening facility. We'll see how it goes. I don't know that we know right now how that's going to interact with Madison and what each facility is going to do. We're going to see what our needs are and see where we can bring people whether it's medicine or San Diego, but it's going to be a big help to us. I think it's going to allow us to continue to push a lot of door candidates into the clinic.

Excellent. Thank you so much and congrats to Bruce out there on his retirement.

Thanks very much.

At this time, I would like to turn it back to Chris Anzalone for any further comments.

Well thanks everyone for joining the call today and I hope everyone stays safe. Talk to you soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Goodbye.