Ladies and gentlemen, welcome to the Arrowhead Pharmaceuticals conference call. I will now hand the conference call over to Vince Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, sir.

Thanks, Aldan. Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its fiscal 2021 first quarter ended December 31, 2020. With us today from management are President and CEO, Dr. Christopher Anzalone; who will provide an overview of the quarter; Dr. James Hamilton, our Senior Vice President of Discovery and Translational Medicine, who has graciously agreed to sub in for Dr. Javier San Martin while he is out ill today; 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 portion of today's call.

Thanks, Vince. Good afternoon, everyone, and thank you for joining us today. The last quarter was an important period for us and our shareholders because we demonstrated clear advances in multiple development programs that we believe represent key value drivers to their respective product candidates and our proprietary TRiM platform. We see this as positioning us well to build substantial value throughout 2021. We seek to create value in two primary ways. First, we push RNAi and our platform forward to address new diseases, therapeutic areas, and organisms. This is fundamentally difficult and uncertain because it relies on innovation. Second, we drive our existing pipeline into later-stage clinical studies toward eventual commercialization. This can be more straightforward and, we believe, increasingly predictable as we generate large amounts of data regarding how well the TRiM platform works. We would expect the progress in either of these areas would drive value for us, but our goal is to show measurable progress in both. As we look at 2021, we expect substantial progress on both fronts, with several opportunities in the first half of the calendar year alone. For instance, by the middle of the year, we could have clinical proof of concept for our ability to bring RNAi outside the liver, opening a whole new range of addressable diseases without adequate treatments. We also expect to begin three large Phase IIb studies and a Phase III study during this timeframe, and we may also have a better idea about how we and Takeda may be able to streamline the ARO-AAT clinical program to accelerate that drug candidate to market.

Thank you, Chris, and good afternoon, everyone. Since we plan to have preliminary data this year for ARO-ENaC, ARO-HIF2, and ARO-HSD, I would like to go through the general designs for those clinical studies and provide an update on their status. First, I will discuss ARO-ENaC, our inhaled RNAi therapeutic candidate designed to target the epithelial sodium channel to treat cystic fibrosis or CF. CF is a rare disease caused by a genetic mutation that leads to mucus buildup in the lungs. It is characterized by airway dehydration and reduced mucociliary transport. Patients with CF can have difficulty breathing and experience frequent and persistent lung infections. ARO-ENaC is in a Phase I/II dose-escalating study to evaluate the safety, tolerability, and pharmacokinetic effects of ARO-ENaC in up to 24 normal healthy volunteers and to evaluate the safety, tolerability, and efficacy in up to 24 patients with CF. The patient portion of the study includes three cohorts: two with six patients each, and one with twelve patients. This was the initially planned design. We intend to make protocol changes shortly that will add an additional twelve healthy volunteers who will undergo bronchoscopy with bronchial brushing and bronchoalveolar lavage, or BAL, to evaluate ENaC knockdown in the lung. We are also considering expanding the CF patient cohorts as well. We've completed dosing in all initially planned single-dose healthy volunteer cohorts, and we have been pleased with the safety and tolerability results to date. We believe this is an important finding for ARO-ENaC and for the pulmonary TRiM platform as we begin to expand our pipeline into additional diseases in the lung. This is particularly relevant to drugs inhibiting ENaC as many of the small molecule ENaC inhibitors have been dose limited by toxicity. We are now dosing CF patients in the first cohort, which we expect to be fully enrolled before the end of next month, at which time we plan to begin enrolling the second patient cohort. So what data do we expect from this study? First, and most importantly, we are assessing safety and tolerability in all cohorts. In the expanded healthy volunteer cohort, as I mentioned, we will be conducting bronchial brushings and BAL. This method may give us a signal on target engagement and a better understanding of pharmacologic activity. Remember that ENaC is not secreted, so we are not able to measure target engagement in the blood as we are typically able to do for our liver-targeted programs. In addition, in CF patients, we will be measuring changes in FEV1 and in lung clearance index or LCI. These would be indications of functional improvements in mucociliary clearance and lung function. There is clearly a lot of data coming out of this first-in-human study, so we are eager to see the ARO-ENaC results. The next program I'd like to highlight is ARO-HIF2. ARO-HIF2 is designed to treat clear cell renal cell carcinoma or RCC, and we are currently dosing RCC patients in a Phase Ib dose-finding clinical study in three cohorts of at least six patients each for a total of eighteen patients with advanced clear cell RCC. The study is designed to evaluate the safety of ARO-HIF2 and to determine the recommended Phase II dose. We are also assessing pharmacokinetics and preliminary efficacy based on RECIST as well as post-dose tumoral expression of HIF-2 alpha and HIF-associated genes. We are dosing the second cohort at this time, which we expect to be fully enrolled this month. The patients in the study are heavily pretreated and have failed multiple lines of therapies. So a positive result for this first-in-human study would include data suggesting delivery to tumors as well as measurable levels of HIF2 knockdown. Similar to ARO-ENaC, we are also looking to characterize safety and tolerability and to select a dose for further studies in Phase II. The last program I'd like to describe is ARO-HSD, our investigational candidate for the potential treatment of alcohol and non-alcohol-related liver disease. There is strong genetic data supporting HSD17B13 as a target for NASH and alcoholic liver disease. We are conducting a Phase I/II 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. We have completed the single dose portion of the study in healthy volunteers. We are currently enrolling and dosing the multiple dose patient portion of the study in NASH or suspected NASH patients. We have completed the first patient cohort and expect to complete enrollment of the second patient cohort this month. After that is complete, there are two more patient cohorts to enroll sequentially. This target is also not secreted. So in order to assess target engagement, we utilize liver biopsies. It's important to mention that this study only involves two doses, which, relative to other later-stage NASH studies, is only a short duration of exposure. So we don't expect to see substantial signs of disease improvement, but rather we are focused on selecting the dose level and regimen achieving optimal gene target silencing. However, we know the platform is highly effective at silencing hepatocyte-expressed genes, so we would expect a high level of target engagement. In addition, we are the first to study inhibition of this target in humans, so we will see if there are any early encouraging signs of efficacy, even though this would be unexpected. As mentioned earlier, we expect all three of these programs to have preliminary data readouts around the middle of the year. It's too early to know in which order they will come, but we expect this to be an exciting period with all these potential data reports coalescing roughly around the same time. Our intention would be to report top-line data highlights in a press release and then further present a fuller data set at an appropriate medical meeting. I will now turn the call over to Ken Myszkowski, Arrowhead's Chief Financial Officer. Ken?

Thank you, James, and good afternoon, everyone. As we reported today, our net loss for the quarter ended December 31, 2020 was $20.7 million or $0.20 per share based on 102.8 million fully diluted weighted average shares outstanding. This compares with a net loss of $2.7 million or $0.03 per share based on 97.1 million fully diluted weighted average shares outstanding for the quarter ended December 31, 2019. Revenue for the quarter ended December 31, 2020, was $21.3 million compared to $29.5 million for the quarter ended December 31, 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, and revenue in the current period also includes the recognition of a portion of the $300 million upfront payment due upon the signing of the collaboration agreement with Takeda. This payment was received in January. Revenue for the Janssen and Takeda agreements will be recognized as we continue to work toward completing our performance obligations of managing clinical trials, the clinical trials in process, and certain manufacturing-related services. We anticipate the remaining deferred revenue of $6.7 million associated with the Janssen collaboration will be recognized in the next fiscal quarter. The remaining $292 million of revenue associated with the Takeda collaboration is anticipated to be recognized over approximately two years. Any additional milestones achieved with our collaboration partners would be additive to this projection. Total operating expenses for the quarter ended December 31, 2020, were $45.4 million compared to $34.3 million for the quarter ended December 31, 2019. This increase is primarily due to increased personnel costs and noncash stock compensation and R&D as our headcount continues to grow. The increase is also due to increased candidate-specific and discovery R&D costs. Net cash used in operating activities during the quarter ended December 31, 2020, was $38.9 million compared with net cash used in operating activities of $23.5 million during the quarter ended December 31, 2019. The key driver of this change was the increased R&D costs discussed. We continue to estimate our full year cash burn to be between $200 million and $250 million. Turning to our balance sheet. Our cash and investments totaled $416.2 million at December 31, 2020, compared with $453 million at September 30, 2020. The decrease in our cash and investments is primarily due to cash used for operating activities. With the collection of the $300 million upfront payment in January 2021, our current cash and investments total approximately $700 million. Our common shares outstanding at December 31, 2020, were 103.2 million. With that brief overview, I will now turn the call back to Chris.

Thanks, Ken. We have a lot in front of us this year. We expect waves of clinical data readouts throughout the year from ARO-HSD, ARO-ENaC, ARO-HIF2, ARO-APOC3, ARO-ANG3, and ARO-AAT. We expect to gain clarity on potentially streamlining and accelerating the ARO-AAT development program. We expect to initiate multiple Phase IIb studies for ARO-HSD, ARO-APOC3, and ARO-ANG3, and possibly for ARO-ENaC and ARO-HIF2. We also expect to initiate a Phase III study for ARO-APOC3 and FCS patients. We expect to file at least three new CTAs this year, including our first for a candidate targeting skeletal muscle. And by the end of the year, I expect Arrowhead to have at least eleven clinical programs targeting four different cell types, and eight of those clinical programs could be wholly-owned. This is indeed a substantial amount of potential value creation. We feel great about where Arrowhead is today, and we're confident about what we can accomplish going forward. It seems like all the pieces are in place for scalable and sustainable growth. We have a strong balance sheet and are disciplined in our use of cash, which allows us to move forward rapidly in a capital-efficient manner. We also are eligible for substantial nondilutive capital in the form of milestone payments from Amgen, Janssen, and Takeda as our partner programs continue to advance. And ultimately, if any of the products are commercialized, we will be eligible for royalties on sales. We have an increasingly validated technology platform in TRiM, and we believe TRiM is on the verge of potentially showing that RNAi can be a powerful therapeutic mechanism for diseases throughout the body. We have a large and rapidly growing pipeline of differentiated product candidates addressing diseases without adequate treatment options. These are all innovative first-in-class molecules; not fast follower, incremental, or me-too products. And lastly, we have the right team in place and our unwavering culture of challenging the norms of drug development. Arrowhead always finds a way to be better, faster, and more efficient than others in the field. This is a powerful combination, and it gives us the opportunity to make a difference in the way numerous diseases are treated. Thanks again for joining us today. I would now like to open the call to your questions. Operator?

Our first question comes from the line of Salveen Richter from Goldman Sachs.

So just one on the ENaC program, could you help us understand the threshold knockdown that you want to see here and what you saw preclinically that could translate? And then on the HIF-2 program, what gives you confidence or optimism with regard to the translation in man?

Thank you, Salveen. To start with ENaC, that's a complex question. There is solid experimental and genetic evidence indicating the potential benefits of knocking out ENaC to improve mucociliary clearance in these patients. However, no one has successfully developed a safe therapeutic to achieve this, which makes us pioneers in this area. It's difficult to determine what level of knockdown would be beneficial, but our best insight suggests that heterozygote ENaC knockouts in humans show some clinical advantage. We believe that if we can achieve a 50 percent knockdown, we may observe positive effects. There’s still a significant distance to cover from where we currently are to that target. In terms of HIF-2 alpha, that's also a challenging matter. We've done as much as we can in animal studies, but the transition to clinical application, especially in oncology, is always tricky. We are eager to see the upcoming data in the next few months. The animal data has been promising, and we are confident about achieving knockdown, though we are still uncertain about the exact level required for clinical benefit. Again, we think that around 50 percent knockdown would be considered a success, which might seem arbitrary, but it appears reasonable at this stage. We'll evaluate our position against this threshold in the coming months.

Our next question comes from the line of Maury Raycroft from Jefferies.

So I just wanted to do a quick check on timing for the three Phase I readouts. It sounds like you can't predict the order of the readouts but, Chris, I think you mentioned by the end of 2Q in your prepared remarks. So just checking if the guidance is for the end of 2Q? Or is it softer, and a possible update could come in 3Q?

No, we're aiming for the end of the second quarter. These are ongoing studies, and nothing will be completed by then. We'll evaluate what we have and determine if we can derive interpretable data. That will really be crucial for us. I believe we can achieve this by the end of the second quarter; that's our target.

Got it. Okay. So you'll report the data by the end of the second quarter then? That's the goal?

Yes, it will be a subset of data, focusing on the top line. As James mentioned in the prepared remarks, our objective is to present a more comprehensive data set at suitable medical meetings. Our aim is to provide you with an initial glimpse to see if it seems like the drugs are effective, and we will provide more details as we progress.

Got it. Okay. And then for the ENaC data, can you clarify how many subjects you plan on reporting there? And with the additional twelve subjects that you're planning on enrolling, do you have an idea of what the doses and dose range will be?

So let's see if we can break that down. I can't specify how many patients we'll report on because I don't know yet. As I mentioned, I believe we'll discuss this further along in the process, but I hope to have some data from the first and possibly the second dose cohort in the patient population. Regarding the healthy volunteers and the bronchial brushing and lavage, James, would you like to clarify what those doses are?

Yes, sure. So that dose is actually up to us to select based on what we see in the previous cohorts and the healthy volunteer cohorts. It's likely that since the safety profile has been favorable, we'll go with the highest dose so the highest dose cohort, and give us the best chance of showing knockdown either in bronchial brushings or BAL.

Okay. Okay. Fair enough. And last quick question just for the HIF-2 patients, can you say how many biopsies you have already and maybe give a sense of what baseline HIF-2 expression levels look like?

So we haven't seen the data yet, and those are going to be patched. However, James, do you want to discuss the number of biopsies we've had so far?

Yes, sure. So we've completed pre- and post-dose biopsies in all six of the cohort I patients and then pre-dose in five of the cohort II patients. And now we won't know about viability of those until we start staining the slides. So how many of those we'll be able to analyze, we don't know that yet, but that's how many biopsies have been completed.

Our next question comes from the line of Shawn from Citi.

Thank you for the detailed update. Can you provide more information on the safety update related to the new update? How many patients are involved? Are they all healthy volunteers, or do we have some actual patients as well? Additionally, I have a follow-up question regarding the skeletal muscle program.

Sorry, I didn't catch that. Are you asking how many patients have been treated so far with ENaC, including both healthy volunteers and patients? Is that your question?

Just the safety update you gave today that everything looks good so far. How many patients did that include?

Sure. That includes all the healthy volunteers in the first four patients in the study. That's all four true.

And you want to go into how many healthy volunteers that is?

Yes, sure. So that's a total of 24 healthy volunteers, six per cohort, and then we'll add that additional twelve for the BAL studies.

Great, great. And then for the skeletal muscle, it seems like it's an area of active area for RNAi and antisense oligo. Are there gating steps for that program? Is it compound optimization at this point? Or is it more about being strategic for the indication that you're going after?

For the first one, we're currently progressing through the necessary stages. Once we receive nomination insights, there's a timeframe needed to navigate through GLP discussions, and that's where we find ourselves now. We are confident in our drug candidates; we simply need to finish the IND-enabling steps, which we are currently in the process of completing. We are optimistic that we will be able to file the CTA sometime in the summer.

Our next question comes from the line of Luca Issi from RBC Capital.

Terrific. Congrats on all the progress. Maybe one on A1 AAT. I think you mentioned optionality to streamline the SEQUOIA trial and the upcoming FDA meeting. Can you just give us a sense of what's on the agenda for that meeting? And what are some of the key goals that you're hoping to achieve during that meeting? So that's one. And then the second on HIF-2 alpha, maybe bigger picture. Can you expand a little bit more on what the bogey for success here? I understand this is a trial primarily dose escalation, and you're looking at PKs. But what are some of the key biomarkers that you really focus on to know whether this is a molecule that is worth further pursuing?

Sure. Regarding AAT, I can't provide too many details as we haven't started discussions with the FDA yet. We're still gathering data and aim to collect twelve-month paired biopsy data before having an open conversation with the FDA about potentially changing endpoints. We believe we might see significant effects earlier than anticipated, so we plan to shorten the study duration, which was originally set for at least two years. We also hope to establish more appropriate endpoints during those discussions and will update you based on the FDA's feedback. As for HIF-2 alpha, this being our first solid tumor targeting program, our main focus is on safety and tolerability, which have been acceptable so far, and achieving knockdown. We haven't seen any data yet, as those biopsies will be batched, but we expect to understand the knockdown effects in the coming months. We're concentrating on achieving consistent and good knockdown for both ARO-HIF2 and the broader franchise. If we reach a knockdown rate of around 50%, we would be optimistic about our drug's potential. HIF-2 alpha is a well-validated target, and there is another promising drug in development. If we can demonstrate reasonable knockdown, we believe there is a market for our drug. Furthermore, we envision significant opportunities if we can target HIF-2 alpha in solid tumors, as it could lead us to pursue a variety of other cancer targets, either independently or in collaboration with others. We're at an exciting stage as we await data, and if the results are favorable, it could propel us forward.

Our next question comes from the line of Esther Rajavelu from UBS.

I have a couple of questions about APOC3 and one about AAT. In the past, you mentioned the possibility of starting a Phase III registrational trial in FCS. Your comments today seem to imply that this is still a possibility. Am I misunderstanding that, or are you still actively pursuing the FCS? Regarding the two Phase II trials you plan to start in patients with severe hypertriglyceridemia, it appears you're excluding patients who had recent pancreatitis in the trial for severe Phase II patients. Can you explain why that is?

Sure. So with respect to FCS, yes, you are reading too much into that. We are going full speed ahead on a pivotal study for those patients. Our timing of this is we plan to file an IND for APOC3 first and then follow that up with plans for that pivotal study, but it is still our intention to move forward as quickly as we can on that population. We think it's a strong unmet medical need. We think that ARO-APOC3 is going to be a really important drug for those patients, and so we are full speed ahead there. With respect to APOC3, I'll just say a couple of things, and I'll hand it over to James. So the two Phase IIb studies, as you know, are going to be in patients with severe hypertriglyceridemia, so those patients above 500. We view that as kind of our fat market, right? We think it's a grossly underserved market. And the regulatory pathway there, we think, is reasonably clear, and we think it's a pretty large population. So it's one that we're really focused on. Now we also want to look at, in the Phase IIb study, those patients who have elevated triglycerides, so say between 150 and 499. We think that, that is also an unmet medical need that we think would require a more comprehensive Phase III study, probably an outcome study. I don't know that we're going to do that, but we want to retain the optionality. And so we want to do that Phase IIb study right now just in case in the future, we're going to want to expand into that patient population. So with that, anyway, I'll hand it over to James.

Sure. The question was about excluding patients with pancreatitis in the APOC3, is that right?

Yes, that's right.

Yes. So we actually don't exclude patients with pancreatitis in either of those Phase IIb studies and either the severe hypertriglyceridemic or the kind of middle-of-the-road, greater than 150 hypertriglycerides study. We do have an exclusion for any patients with active pancreatitis within the last 12 weeks. So we just don't want anyone in the study who has recently had pancreatitis and may still be suffering from associated sequelae. So we actually have some endpoints in the severe hypertriglyceridemic study, looking at rates of pancreatitis and things like that. So we don't exclude those patients.

Got it. So it's only they had it within the last 12 weeks or so that you're not going to include them.

We just don't want to include patients who have had pancreatitis very recently.

Can you provide an overview of the upcoming readouts in 2021 for AAT, particularly regarding the 12-month readout and its implications for the Phase III trial? It seems that you expressed increased confidence about possibly not requiring a two-point reduction in fibrosis for registration. How are you approaching this? Are you focusing on the polymer reduction rate and considering the association between polymer reduction and fibrosis based on findings from other studies?

Yes. I don't want to delve too much into this, as I don't want to preempt our discussions with the FDA. However, it's evident that the accumulation of the Z protein causes alpha-1 liver disease. We believe this could serve as a potential approval endpoint or at least part of a composite endpoint, meaning we shouldn't necessarily have to demonstrate a reduction in fibrosis. If a reduction in fibrosis isn't a requirement for NASH approval, we don't think it should be a barrier for this rare disease either. Additionally, the SEQUOIA study didn't rely on fibrosis resolution but focused on improvement in a histologic rating scale without worsening of fibrosis. We hope to advance this understanding, as we believe the underlying biology is becoming clearer, and that simply reducing the burden could be a valuable marker.

Our next question comes from the line of Ted Tenthoff from Piper Sandler.

Great. Shifting topics a bit, there has been a lot of success with partnering assets, particularly hepatitis B and AAT. Looking ahead, what do you envision for Arrowhead's future? Do you see the company becoming focused on targeted cardiovascular treatments? With ongoing developments in oncology regarding combinations, could that represent a potential partnership opportunity? What about liver disease? Please provide an overview of how you're evaluating these various assets and what you anticipate will be central to your future plans.

Thank you, Ted. That's an insightful question, and it's a fluid topic because our focus will naturally evolve as we develop. Here's a broad overview of our perspective. As you know, Ted, you've been following us for a long time, and even when we were a $40 million company, we never envisioned ourselves solely concentrating on a specific therapeutic area. We believed the technology was too potent and offered too much potential value to limit our focus. Over the past decade, we've put in considerable effort, which you've seen, to expand this technology into various cell types, and we are now nearing that point. This leads to the question of what we retain in-house and what we seek partnerships on. Currently, we believe that cardiovascular and pulmonary fields make a lot of sense for us, as there is a good synergy between these two areas. We have significant value to offer physicians in those specialties. However, these will not be our only focus areas in the future, and I can assure you of that. As we develop additional franchises, I firmly believe we will also enhance our sales and marketing efforts in other sectors. Will oncology be one of those sectors? It’s possible. In the short term, though, oncology is challenging. I hope we can generate positive data in ARO-HIF2 that might help us bring on a strong partner to expand that franchise significantly. While we may still have our wholly-owned products, we would be open to collaborating with an established oncology company with deep knowledge to help us identify and prioritize targets. We're not at that stage yet, as we want to gather some data first, but it seems likely in the future.

Our next question comes from the line of Alethia Young from Cantor.

Yes, this is Li on for Alethia. So just wondering if the HIF-2 program looks successful, what other targets might be of interest to you in oncology? And then how are you thinking about the other companies with similar NASH targets?

Sorry. So the question was other oncology targets and then how do we fit...

Yes.

Okay. And then the other one was how do we fit with other NASH strategies? Is that where we're going?

Yes.

Okay. I don't have much to share regarding the oncology targets. We are exploring some other targets, but we haven't made any announcements in that area. We do have some internal programs, and as I mentioned earlier, we would like to find a partner eventually. I’m not sure when that might happen—whether this year, next year, or later. However, if we obtain positive data, we would like to collaborate on at least part of our oncology work. At this moment, I can't provide details on other targets we are considering. Regarding NASH, it is quite challenging. We find the genetic data on HSD to be compelling, as knocking down HSD seems to offer some protective effects against NASH. However, it’s not a definitive solution. I anticipate that NASH will require a combination approach similar to HBV. I don’t know what the ideal combination would be, and it is likely to differ across patient populations. We are beginning to realize it may involve various diseases. We believe HSD could serve as a strong foundation and assist different patient populations, with the potential to combine it with additional compounds on top of ARO-HSD. It’s too soon to provide concrete insights since we haven’t seen any data yet. Additionally, we've previously indicated that we see potential for HSD in treating alcoholic hepatitis as well. The genetic data for that condition were at least as promising as those for NASH. Although we are not currently pursuing anything in those patient populations, I can envision us entering that space in the future. I apologize if this seems evasive, but that's our current perspective on NASH.

Our next question comes from the line of Patrick Trucchio from H.C. Wainwright.

I have a follow-up on the cardiometabolic programs. So I'm wondering what questions you're looking to answer in the smaller open-label studies with ARO-APOC3 and ARO-ANG3? Secondly, how many studies would you anticipate? And how many patients would you anticipate enrolling in these studies? And when would the data from these studies be expected?

Yes, thank you for bringing that up. It's a significant topic. We've previously discussed the two Phase IIb studies for APOC3 and one for ARO-ANG3, as well as the Phase III study in APOC3 for FCS patients. We are now starting to investigate additional questions for these smaller studies, although we haven't finalized those yet. I expect that by our next conference call, we will have made some decisions and started to move forward with them, allowing me to share more details then. For now, we are examining what these additional studies could entail. There will be a few of them. Our objective is twofold: first, to address as many questions as possible during this period, since these Phase IIb studies will be blinded and will require about a year of exposure. There will be a timeframe where we cannot begin a pivotal study until they are completed, so we want to utilize that time to answer other questions. We aim to conduct these shorter studies, some of which may be open-label, enabling us to report on their findings while the longer studies are ongoing. This approach allows us to keep discussing our observations. However, I cannot provide specific details at this moment, as we are still in the planning stages. I anticipate we will finalize these details within the next couple of months.

Got it. I have a few follow-up questions on the lung programs. First, regarding ARO-ENaC, what led to the decision for the protocol changes? Did the FDA request these changes, or what specifically prompted them? For ARO-COV, I understand that a competing RNAi program has been delayed due to the need for additional work in a hamster model. How is ARO-COV progressing, and could it start human trials in 2021? Also, to what extent are emerging variants affecting this program? Should we anticipate additional RNAi triggers to prevent resistance? Lastly, how do you perceive the positioning of RNAi antivirals compared to monoclonal antibodies, several of which have received emergency use authorizations in the U.S., but seem to be facing resistance issues with the new variants?

There are quite a few questions to address, so let's begin with ENaC. The adjustments to the protocol were entirely motivated by our intention to examine knockdown in healthy volunteers. This was not mandated by anyone and was not part of the initial protocol because we initially lacked a suitable assay and were uncertain about our measurement capabilities. Since then, we've developed the assay and are now prepared to proceed. We aim to investigate bronchial brushing and bronchial lavage to assess knockdown in healthy volunteers, which is a crucial metric for us. As I noted earlier, this is a small study involving patients, making it challenging to observe FEV1 changes in such a limited group. This approach provides us with a more accurate assessment of how effectively the drug works and its delivery to pulmonary epithelial cells. This change in the protocol to include these subjects was based on that rationale. Regarding COVID, our progress has not been as swift as we had hoped, mainly due to challenges with animal models, which we do not control, and difficulties in securing slots for these studies. As a result, this has lagged behind other areas where we can conduct our own studies or collaborate with a broader range of CROs. However, we remain enthusiastic about the potential. The emergence of new variants has not impacted our program but has reinforced our conviction in the necessity of RNAi-mediated antivirals. It is entirely feasible that this virus may eventually mutate in response to the vaccines. Our objective is to develop a broad-spectrum antiviral that can address not only the current coronavirus but also potential future coronaviruses. This scenario is progressing as we anticipated, highlighting the importance of our therapeutic approach. As we've shown with HBV, we know we're pretty good at playing in antivirals. And your point is a good one about multiple triggers. The way we view this is probably multiple triggers are going to be better than it would be a single trigger; but the same reason that it was for HBV. As you may remember, our HBV compound has two different triggers. One reason is to guard against mutation, but the other reason is to give you broader coverage across genotypes. That will be the case here as well for a wide variety of coronaviruses that are out there.

Our next question comes from the line of Mayank Mamtani from B. Riley Securities.

Congrats on a productive 2020, and it seems like even a busier 2021 ahead for you. So a quick follow-up on ENaC. Is there anything you've learned from a PD standpoint or anything from an alternative approach, antisense, that gives you confidence at this point on target engagement? And anything you can comment on that?

Yes, that's a good question. It's hard for us to interpret the antisense data that we've seen. So there's been no bad news there for us, but there's been no good news either, the way we look at it. And so no, unfortunately. We'll have to wait and see what those data look like. And we're, of course, anxious to see what our data look like. We're going to know a heck of a lot more over the next couple of months, that's for sure.

Okay. And then just a quick follow-up on the biopsy duration for the HSD program. Did we learn anything from the 6-month biopsy we obtained from the AAT program? Is there any connection you all can see as you consider the NASH program?

I don't see a direct connection. We've discovered that these proteins vary greatly, as do the triggers associated with them. The depth and duration of knockdown will also differ based on the specific trigger and protein involved. We are confident that ARO-HSD will provide effective, lasting knockdown based on our experiences with HBV, AAT, APOC3, ANG3, Lp(a), and others. However, I don’t think we gained specific insights from AAT that will be relevant to HSD. Our focus is quite narrow; we are primarily concerned with effective integration of knockdown. As we stated, we are not anticipating disease alleviation in this short study. Therefore, our main objective is to determine the appropriate dosage. Unfortunately, without a known circulating biomarker, the only way to identify the right dose is to conduct a biopsy to evaluate how deep and durable the knockdown is. This data will then inform a larger Phase IIb study, which may provide insights into disease progression, but we do not expect to obtain any information regarding that at this stage.

Yes, so we do two different post-dose biopsy time points. One is at day 71 post-dose and the other is after the last dose. These patients get two doses. And the other is at day 169. So we stagger them to get a better idea of duration.

Okay. Great. And my final question is about cash flows, considering you have some partners coming in, such as J&J, Amgen, and Takeda. How should we view your burn rate for opportunities there, especially in light of some near-term factors?

I think we might have lost you here. You're very quiet, Mayank.

Can you hear me now? Can you hear me now?

Yes, you're back. So go ahead.

Yes. So the final question was on cash flows. As you think about 2021 and think about the different partner milestones from J&J, Amgen and Takeda, how should we think about your burn rate? Again, in the context of some of the commercial stage programs might be getting pushed out a little bit like APOC3 and AAT obviously being partnered out. How should we think about the expense for 2021?

We have reiterated our expectation of a cash burn between $200 million and $250 million for fiscal 2021. We have sufficient cash to manage that. Additionally, there is a possibility of receiving some milestone payments during this period. While I can't provide guidance on that, due to its uncertain nature, I believe it is achievable. However, in the worst case, if we do not trigger any payments this year, we are still well-positioned to handle the burn. Looking ahead to next year, I am confident we will have access to further milestone payments. Overall, I am optimistic about our financial position and our ability to secure additional capital through our partnerships.

Our next question comes from the line of Keay Nakae from Chardan.

Chris, with respect to HIF, if your working thesis right now is that 50% knockdown could have an effect on the disease, should that prove to be too low based on your current dose levels and dose intervals? Do you believe you could go higher than that to achieve a higher knockdown if needed?

Yes, we are eager to see the dose response, especially if we achieve a 50% knockdown at the highest dose we've administered. So far, there are no indications that we cannot increase the dosage further. This is not a typical cancer trial where we push the dose to the limit until we observe severe side effects. We aim to avoid toxicities in patients. Therefore, it is indeed possible to achieve a 50% knockdown and still believe there is room for further reduction. As long as we aren't observing dose-limiting toxicities, we are comfortable with increasing the dosage. To date, we have not encountered any safety concerns related to HIF-2 alpha or ENaC.

Our next question comes from the line of Mani Foroohar from SVB Leerink.

I want to quickly follow up on what Maury mentioned earlier. Regarding the ENaC readout, you pointed out in your prepared comments that it's reasonably possible to observe an uninterpretable or unclear FEV benefit while also seeing a significant knockdown benefit in healthy normal volunteers. If this data set, similar to what was observed in the early data sets from Vertex and Translate Bio, were to appear, how would you interpret it? Would you conclude that the target isn't effective, or would you think a higher dose is needed? How do you decide how to proceed with data that does not clarify the relationship between knockdown, dose, and efficacy?

There’s a lot to consider, and it's challenging to make decisions until we have more data. However, generally speaking, if we see good knockdown but no noticeable changes in FEV1 among those four patients, I believe we shouldn't be overly concerned at this point. We view this as positive news. We have a drug that appears to be functioning as intended, and we believe we can explore its potential in other disease areas. Regarding cystic fibrosis, we should expand our patient base since four isn't a substantial sample size. If we can treat around ten patients, it may allow us to observe changes in FEV1. Additionally, this study is relatively brief, and we are open to the possibility that we may need to increase the dosage to see those changes in FEV1. If we don't see an FEV1 change but continue to see good knockdown, it doesn’t mean our progress is diminished. In fact, it may indicate that we have a powerful solution. We have ample time this year to treat more patients and monitor them longer to assess any potential changes in FEV1.

Great. That's helpful.

The cohorts we'll have middle of the year will be the two lower dose cohorts. So we still have the top dose in CF patients to go.

And also it would be the baseline characteristics of the patients. When you're talking about small ends like this, that may make a difference. It shouldn't matter theoretically what the genotype is or background therapy, but this is a small end. So I think the main point here is that we get knocked down, we get functional delivery, and we're safe. And then that's a win.

Right. That's what we want to be able to focus on. Look, we want FEV1, of course, because that ultimately is going to be important. But when we're looking at this drug over the next couple of quarters, what we're really focused on are those: the knockdown data and, of course, the safety and tolerability of the drug. If both of those are positive, we are off to the races, and we'll continue to look at patients going forward.

That's really helpful. And then hopping over to NASH, there have been a couple of other companies that also commented on the genetic data. Obviously, there's some evidence, unclear if it's correlative or positive, in terms of the potential benefit in both alcoholic and nonalcoholic steatohepatitis. What kind of datasets would you need to see, maybe in later-stage studies from you guys, to parse that out and say, okay, this is really positive, and a knockdown of HSD is going to be reasonably expected to show a benefit at a longer-term pivotal trial? Are there biomarkers you're tracking? Are there early clinical datasets that we might see as early as 2022 to sort of parse out that causation correlation issue?

Certainly. The straightforward target for us is ALT, which is linked to the loss of function mutation where individuals typically have lower ALTs. This makes it a simple biomarker to assess in early stage studies and beyond. Apart from that, there aren’t many other options in terms of biomarkers for imaging or blood tests. You would then be looking at Phase IIb biopsy studies to demonstrate proof of pharmacologic effect and benefit.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Chris Anzalone for any further remarks.

Thanks, everyone, for joining us today. It's been a pleasure to speak with you, and we'll talk to you next quarter.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.