Arrowhead Pharmaceuticals, Inc. Q2 FY2022 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 call over to Vince Anzalone, Vice President of Finance and Investor Relations for Arrowhead. Please go ahead, Vince.

Thank you, Tania. And good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its fiscal 2022 second quarter ended March 31, 2022. With us today from management are President and CEO, Dr. Christopher Anzalone, who will provide an overview of the quarter; Dr. Javier San Martin, our Chief Medical Officer, who will provide an update on our mid-and later stage clinical pipeline; Dr. James Hamilton, our Senior Vice President of Discovery and Translational Medicine, who will provide an update on our earlier stage program; and Ken Myszkowski, our Chief Financial Officer, who will give a review of the financials. We will then open the call to your questions. Before we begin, I would like to remind you that comments made during today's call contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are forward-looking statements and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. For further details concerning these risks and uncertainties, please refer to our SEC filings, including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q. That said, I'd like to turn the call over to Chris Anzalone, President and CEO of the Company. Chris?

Thanks, Vince. Good afternoon everyone and thank you for joining us today. I want to start by saying thank you to all those who joined yesterday in Verona, Wisconsin for the groundbreaking ceremony at the site of our new manufacturing and lab facilities including Mayor Diaz, Secretary Hughes and Governor Evers. Many people from BioForward, the cities of Madison and Verona, and the state of Wisconsin have been very supportive of Arrowhead over the years. We appreciate their partnership as we grow our business and capabilities to support the potential future commercial opportunities for our investigational RNAi-based medicines. To that end, we announced yesterday that we received awards of up to $18.5 million in incentives to invest in the local region and create new jobs. These incentives help to defray some of the build-out costs for our Verona facility but importantly, demonstrate the commitment of the region to expand the number of highly skilled jobs and attract talent. We have been very impressed with the quality of the workforce and intend to be a long-time contributor to the growing biotech ecosystem in Wisconsin. So what does this new manufacturing facility and associated office and lab facility do for Arrowhead? First, it increases our control over manufacturing at all scales, which should decrease costs and increase our speed and flexibility. Second, it enables us to better control IP as we develop new methods of manufacturing aimed at decreasing costs, increasing purity, and increasing scale. Third, it makes us a better and more complete partner to those companies bringing the drugs we create to patients and fourth, it provides additional specialized lab space to enable continued growth and innovation as we bring RNAi to new cell types and address new diseases. This is an investment in Arrowhead's future as a vertically integrated commercial stage pharmaceutical company. We are making this investment now because we have a high degree of confidence in our investigational medicines, both wholly owned and partnered. This is an important step when a development stage company is serious about becoming a commercial entity. Let's now talk about some of the recent progress we've made toward that transition. First, we initiated the PALISADE study, Arrowhead's first phase three study of ARO-APOC3 in patients with familial chylomicronemia syndrome or FCS. FCS is a rare disease in which patients have extraordinarily high triglyceride levels, often in the 1000s of milligrams per deciliter. This can lead to severe and recurrent bouts of pancreatitis, which often involves hospitalization and can be fatal. In addition, these patients experience multiple additional symptoms, which adversely impact quality of life. These patients have no FDA approved treatment options. Our clinical data and prior studies of ARO-APOC3 have shown clear and dramatic reductions in triglycerides, so we're confident that ARO-APOC3 is doing what it is designed to do. We are working to accrue patients in the PALISADE study as quickly as possible, since there is such high unmet need for these patients. In addition to starting our first Phase 3 study, we also completed enrollment in the Phase 2b ARCHES-2 study of ARO-ANG3, our other wholly owned investigational cardio-metabolic candidate for patients with mixed dyslipidemia. This study enrolled over 200 patients with elevated triglycerides and LDL cholesterol. Completion of ARCHES-2 is anticipated around the end of this year, and we intend to release top-line data in the first half of 2023. These data will inform the next phase of development and potentially provide a path to another late-stage clinical study that we hope will be registrational. We also recently initiated the GATEWAY study of ARO-ANG3 in patients with homozygous familial hypercholesterolemia, or HoFH. This study will evaluate the ability of ARO-ANG3 to reduce LDL cholesterol in patients with the most serious and rare form of familial hypercholesterolemia. We view the HoFH opportunity in a similar way to the FCS opportunity for ARO-APOC3, where there may be a rapid path to approval in a narrow patient population with severe disease while we conduct larger clinical studies in higher prevalence indications. As I mentioned earlier, our investment in the new manufacturing facility is to support our growth into a commercial stage company. We think there are multiple opportunities to get there in the near to midterm, and we are preparing on all fronts. To that end, we appointed a new member of our board of directors. Vicky Vakiener is an accomplished commercial pharmaceutical executive with decades of experience building commercial organizations and launching new products across multiple therapeutic areas to have an important voice on the board and provide valuable input as our commercial strategy maps out. I also want to give a brief update on our later stage partner candidates. These are Olpasiran targeting Lp(a) with Amgen, ARO-AAT also called TAK-999 with Takeda, JNJ-3989 formerly Arrow HBV for chronic hepatitis B infection with Janssen and ARO-HSD for treatment of NASH with GSK. Amgen has indicated publicly that Phase 2 clinical data for Olpasiran is expected around the middle of the year. They've also indicated that if the data are consistent with the positive data seen in Phase 1 that they would move rapidly to start a Phase 3 study. We're very excited about this program and eager to see the Phase 2 data. We believe that elevated triglycerides, Lp(a), LDL cholesterol, and possibly low levels or poorly functioning HDL are all contributors to the substantial remaining risk of cardiovascular disease even in patients on maximal LDL lowering therapies. We have candidates addressing all of these. Our two wholly owned programs, ARO-APOC3 and ARO-ANG3, and our partner program at Amgen may be able to address multiple lipids that contribute to this risk. We still need to conduct clinical studies to assess their efficacy and safety, but we have a high degree of confidence in these programs. Moving on to TAK-999, we are on schedule to collect the last 12-month biopsy from the last patient in the SEQUOIA study in June or July of this year. After the sample is taken, all clinical samples will be processed and analyzed, and biopsies will be prepped and read. This process will likely take a few months, so we should have data available in the fall. Our intention would be to present those data in an appropriate forum. According to our agreement, Takeda will lead clinical developments and regulatory interactions after Phase 2. We will still be closely involved with the process and have had a very productive relationship with our colleagues at Takeda. We look forward to additional regulatory interactions this year and moving the program forward rapidly. JNJ-3989, formerly ARO-HBV, is being investigated in multiple large Phase 2 studies that all include a follow-up phase. Together, these will include close to 1000 patients on various combination therapies. We would expect regular readouts for the foreseeable future as data come in. Public data thus far suggests that JNJ-3989 is doing what it is designed to do and substantially reducing viral antigens. We are excited to see these data and are hopeful that they will point to a treatment that is desperately needed by the 300 million people thought to suffer from chronic hepatitis B infection worldwide. Our partnership with GSK for ARO-HSD closed at the end of the first quarter of this year. Since then, we have been working productively together and expect GSK to initiate a Phase 2 study this year in patients with NASH. This represents a large unmet medical need; HSD is a genetically validated target. We believe we were the first to address this target clinically. And our Phase 1 data were compelling in terms of knockdown, tolerability, and transamination decreases in patients with respect to NASH. Ultimately, in our mid- and later stage pipeline, we were also active during the quarter expanding our early stage clinical pipeline. We believe sustainable growth requires a diversified portfolio of candidates across therapeutic areas, disease prevalence, and patient population size and across stages of development. So it's critical that we both advance our later stage programs and also constantly expand our early stage pipeline. We must also remember that Arrowhead is really good at moving rapidly from idea to the clinic. We likely will not have the bandwidth to commercialize everything we produce, and we certainly do not intend to tap the brakes on early development. As such, some of those programs will be partnered to, A: put them in the hands of companies that will move aggressively to get them to the patients who need them and B: provide capital for us to commercialize our wholly owned assets. Developing important new medicines is an expensive business. And we have the luxury of not being solely dependent upon the capital markets to fund this. We expect this year and every year for the foreseeable future, to bring in significant capital from new and existing partnerships. I expect Arrowhead to commercialize a variety of important medicines and a targeted partnership strategy helps provide necessary capital for this while also providing potentially substantial long-term economics. We added three new clinical programs over the recent period. ARO-C3 for the treatment of complement-mediated diseases, for which we initiated a Phase 1/2 clinical study; and our second and third pulmonary programs, ARO-RAGE and ARO-MUC5AC for which we filed CTAs to initiate Phase 1/2 clinical studies. We'll talk more about ARO-RAGE and ARO-MUC5AC in our upcoming pulmonary R&D Day on May 26. Arrowhead team members and two external key opinion leaders will talk about the treatment landscape for various muco-obstructive and inflammatory lung diseases and the role that RAGE and MUC5AC may play in addressing them. We will also discuss other advancements in the pulmonary platform and disclose the next pulmonary candidate we expect to bring to the clinic. During the quarter, we also presented interim results for Phase 1b dose finding study of ARO-HIF2, our investigational candidate for patients with clear cell renal cell carcinoma. The data presented provide initial proof-of-concept based on reductions in HIF2 alpha expression. We have been working on a HIF program for over a decade using different strategies and many different iterations of our delivery technologies. Our goals for that program were threefold. One, we wanted to develop a HIF2 alpha targeted therapy because there is supportive evidence that it could have an effect for RCC patients, and it had historically been undruggable with small molecules or monoclonal antibodies. Two, we wanted to validate that we could get functional delivery of siRNA to solid tumors, indicating that we may have a platform that can be applied to additional targets in various cancer types. And three, we wanted to use the tumor delivery program as a way for us to learn critical lessons that could be applied to delivery systems targeted to various other extrahepatic tissues. We think we accomplished numbers two and three. But the therapeutic landscape has changed for goal number one; the competitive environment is dramatically different today than it was just a few years ago, with one small molecule HIF2 alpha inhibitor FDA approved and others in clinical development. We have examined the data from our clinical study. And at this point, based on the competitive environment, we have decided not to continue further development of ARO-HIF2. This decision was made after significant deliberation and analysis. And we would like to acknowledge and give our sincere thanks to the investigators, site staff, and of course patients who participated in our clinical study. However, as I mentioned, we did accomplish some important things with our first tumor-targeted program. Probably the most critical piece that has wide-ranging implications is that we learned more about how to optimize each individual component of the system to squeeze as much knockdown as possible out of each siRNA molecule. These lessons made it possible for us to develop the technology to get to various other extrahepatic tissues. We believe we are now much better at several things including trigger design, optimizing chemical modifications, log and design and selection, linker optimization, and design and use of PKPD enhancing structures, as well as other things that can optimize target engagement. We also believe that we have a good start in an oncology platform; we saw clear target engagement, suggesting that we are able to deliver to solid tumors. In short, we are on the board. We are now using the lessons we learned from that study to further optimize the platform for use in other tumor types against new targets. We believe that RNAi can play a role in cancer treatment, and we are pushing in that direction. We’ll highlight one more piece of corporate news. We recently announced that Arrowhead formed a joint venture called Visirna Therapeutics with Vivo Capital to expand the reach of innovative medicines in Greater China. Vivo provided initial funding of $60 million to Visirna, which will have exclusive rights to develop and commercialize four of Arrowhead's investigational therapeutics for cardiometabolic diseases in Mainland China, Hong Kong, Macau, and Taiwan. Arrowhead has a majority stake in Visirna after accounting for shares reserved for the employee stock ownership plan, and is further eligible to receive potential royalties on commercial sales. China is an increasingly important market for global pharmaceutical products. We believe to be successful in China, you are better off with a dedicated entity with its own management and development staff that understands and is solely focused on the intricacies of China's clinical regulatory and commercial environment. That is what we envision Visirna becoming. We're looking for more than just a financial investor, and Vivo checked all the necessary boxes. Vivo has unique experience, expertise, and a local network to draw upon. That makes them a very valuable partner in this joint venture. We think this transaction allows us to maximize value and maximize the probability of success without losing focus on our core target markets for future commercialization. Really a win-win scenario, and a transaction that we think over time has the potential to become substantially more valuable. We view this as another quarter where we executed well and achieved some key corporate goals. For a company our size with respect to headcount and market value, we have a uniquely broad and diverse set of assets. A part of the Arrowhead DNA is a devotion to speed and precision and a commitment to bring RNAi to intractable diseases. This prior period is a good example of that. With that overview, I’d now like to turn the call over to Dr. Javier San Martin. Javier?

Thank you, Chris and good afternoon, everyone. I will provide updates on enrollment for the VISTA set of studies for ARO-ANG3 and the SUMMIT study for APOC3 and give some forward guidance on anticipated timelines. I will start with the VISTA studies of ARO-ANG3, our investigational medicine designed to reduce production of angiopoietin-like protein three as a potential treatment for patients with dyslipidemia. There are currently two active studies: ARCHES-2 in patients with mixed dyslipidemia and GATEWAY in patients with HoFH. ARCHES-2 is a double-blind placebo-controlled Phase 2b study. ARCHES-2 is fully enrolled with 204 patients with triglycerides between 150 and 500 milligrams per deciliter and non-HDL cholesterol greater than 100 milligrams per deciliter or LDL cholesterol greater than 70 milligrams per deciliter. The patients are randomized in a 3:1 ratio to receive a subcutaneous injection of ARO-ANG3 or placebo on Day 1 and Week 12, with those levels ARO-ANG3 350 milligrams, 100 milligrams and 200 milligrams being evaluated against placebo. The duration of the study is approximately 42 weeks from screening to the Week 36 end of study examination. After completing the Week 36 examination, participants will be eligible to continue in an open-label extension period. We anticipate that ARCHES-2 will be completed around the end of this year, and top-line data will be available to share in the first half of 2023. The next ARCHES study, GATEWAY, is an open-label Phase 2 clinical study to evaluate the efficacy and safety of investigational ARO-ANG3 in up to 16 patients with HoFH. The dose levels of ARO-ANG3 200 and 300 milligrams will be evaluated in patients with documented HoFH based on genotype or clinical criteria, with fasting LDL cholesterol greater than 100 milligrams per deciliter and fasting triglycerides less than 300 milligrams per deciliter. ARCHES will receive a subcutaneous injection of ARO-ANG3 on Day 1 and Day 84 and may be eligible to participate in an optional open-label extension study. The primary objective of the GATEWAY study is to evaluate the efficacy and safety of ARO-ANG3 in patients with HoFH, and the primary endpoint is the percent change in fasting calculated LDL cholesterol from baseline to week 24. We just started opening clinical sites and enrolling GATEWAY a few weeks ago, so we don't have great visibility into how long it may take to accrue all 16 patients; however, we hope to have the study fully enrolled or at least have a meaningful amount of patients enrolled by the end of this year. This is an open-label study, so we may be able to view results in real-time. Therefore, we intend to share data in 2023 when possible. Next, I will provide an update on the SUMMIT study of ARO-APOC3, our investigational medicine targeting apolipoprotein C-III being studied in patients with various lipid disorders. There are three active studies: SHASTA-2 in patients with severe hypertriglyceridemia, MUIR in patients with mixed dyslipidemia, and PALISADE in patients with FCS. SHASTA-2 is a double-blind placebo-controlled Phase 2b study with approximately 216 patients with triglycerides greater than 500 milligrams per deciliter. The dose levels of ARO-APOC3 10 milligrams, 25 milligrams and 50 milligrams will be evaluated against placebo. The primary objective of the SHASTA-2 study is to evaluate the safety and efficacy of ARO-APOC3 and to select a dosing regimen for the later-stage clinical studies in this patient population. Moving on to the MUIR study, which is a double-blind placebo-controlled Phase 2b study in approximately 320 patients with triglycerides between 150 and 500 milligrams per deciliter and non-HDL cholesterol greater than 100 milligrams per deciliter or LDL cholesterol greater than 70 milligrams per deciliter. In three cohorts, 10 milligrams, 25 milligrams and 50 milligrams, each participant will receive subcutaneous injection on Day 1 and Week 12 for a total of two injections. In one additional 50-milligram cohort, each participant will receive a subcutaneous injection on Day 1 and Week 24 for a total of two injections. The primary objective of the MUIR study is to evaluate the safety and efficacy of ARO-APOC3 and to select the dose and dosing regimen for later stage clinical studies in patients with mixed dyslipidemia. The two studies are both approximately 50% enrolled, and we anticipate full enrollment in the fourth quarter of 2022. This will allow for study completion in 2023. The last study is the SUMMIT program, PALISADE, a Phase 3 study in approximately 72 patients with FCS. The primary endpoint of PALISADE is the reduction from baseline in patients with fasting triglycerides. Additionally, secondary and exploratory endpoints include the change in other lipid parameters, incidence of acute pancreatitis, and other measures. By working hard to open clinical sites around the world, we aim to accrue the study as fast as possible. We originally anticipated recruiting a number of patients in Russia, Ukraine and Belarus. However, due to the ongoing conflict, we have closed all clinical sites in the region. We're adding clinical sites in additional countries to maintain patient accrual. Our current goal is to have PALISADE fully enrolled in the middle of 2023, which will allow for study completion in 2024. I will now turn the call over to Dr. James Hamilton. James?

Thank you, Javier. I want to give updates on a few of our early stage clinical programs and preclinical programs. Let's start with ARO-C3, our investigational RNAi therapeutic designed to reduce production of complement component 3 or C-3, as a potential therapy for various complement-mediated diseases. During the quarter, we dosed the first subjects in a clinical study. This is a Phase 1/2 placebo-controlled dose-escalating study to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of ARO-C3 in up to 24 adult healthy volunteers and up to 24 patients with paroxysmal nocturnal hemoglobinuria or PNH and up to 14 adult patients with complement-mediated renal disease. In part one, healthy volunteers will receive a single subcutaneous injection of ARO-C3 or placebo. In part two, eligible subjects with PNH or complement-mediated renal disease will be enrolled to receive open-label ARO-C3. We have completed dosing in three of four planned cohorts in part one and expect to dose escalate to the final planned cohort. We intend to initiate part two in patients when we have selected a dose from part one in the next quarter or so. Moving on to our first planned skeletal muscle-targeted candidate ARO-DUX4, our investigational candidate designed to target the gene that encodes human double homeobox 4 protein or DUX4 as a potential treatment for patients with facioscapulohumeral muscular dystrophy or FSHD. FSHD patients have no real therapeutic options, so we are moving as quickly as possible to begin clinical studies. However, it has been challenging for the field to identify a reliable biomarker of DUX4 expression or of disease activity in patients with FSHD. Thus, it is likely that Phase 1 results may not be informative with regard to pharmacodynamic biomarkers and may only inform on initial safety. Longer Phase 2 studies may be required to see any signs of favorable changes on imaging or in clinical endpoints. As such, in an effort to de-risk Phase 2 studies, we have opted to wait for the results of chronic toxicology studies prior to filing a CTA for ARO-DUX4. We will provide an update on timing of the CTA when we have a clear assessment on chronic tox results. The next update I want to give is on our discovery stage programs with Janssen called Arrow JNJ-2 and Arrow JNJ-3. We previously delivered candidates to Janssen that met the parameters described in the research plan. Both candidates achieved the desired level of safety and activity. Janssen then had a period in which to do disease model and biology work on the targets they selected before having to opt-in and exercise the option to take an exclusive license to these candidates. That period has now expired and Janssen did not elect to exercise their option. Because of this, we're removing the programs from our active pipeline. The first discovery program outside of hepatitis B in our collaboration with Janssen is JNJ-75220795, formerly called Arrow JNJ-1. This is an investigational siRNA therapeutic, developed using Arrowhead's proprietary trim platform, and is designed to reduce expression in the liver of patatin-like phospholipase domain-containing 3 or PNPLA3 as a potential treatment for patients with non-alcoholic steatohepatitis or NASH. This program is in a Phase 1 clinical study and continues to progress as planned in clinical development. The last programs I want to discuss are our newest pulmonary candidates, ARO-RAGE and ARO-MUC5AC. We filed CTAs last quarter and I am pleased to announce that both programs have received provisional approval from an ethics committee and now have regulatory clearance to begin clinical studies. We anticipate first-in-human studies will begin around the middle of 2022. The program ARO-MUC5AC targets expression of MUC5AC, a mucin protein with unregulated expression in the asthmatic airway. ARO-MUC5AC is an extremely exciting program in part because it represents a fundamentally new way of treating muco-obstructive disease. The second program, ARO-RAGE, targets expression of the receptor for advanced glycation end products or RAGE. RAGE represents an upstream mediator of the inflammatory cascade. We believe they both have a differentiated mechanism and offer potential advantages over currently available therapies for various muco-obstructive and inflammatory pulmonary diseases. We will describe these programs in more detail at our pulmonary R&D Day on May 26. I will now turn the call over to Ken Myszkowski. Ken?

Thank you, James, and good afternoon everyone. As we reported today, our net income for the three months ended March 31, 2022, was $44.4 million, or $0.41 per share based on $107.9 million fully diluted weighted average shares outstanding. This compares with a net loss of $26.8 million, or $0.26 per share based on $103.9 million fully diluted weighted average shares outstanding for the three months ended March 31, 2021. Revenue for the quarter ended March 31, 2022, was $151.8 million compared to $32.8 million for the quarter ended March 31, 2021. Revenue in the current period primarily relates to the recognition of $120 million upfront payment received under our collaboration agreement with GSK, and recognition of a portion of the upfront payments received from our license and collaboration agreements with Takeda and Horizon. The upfront payment for GSK was recognized as revenue entirely in this quarter as our performance obligations are substantially complete. Revenue for our collaboration agreements with Takeda and Horizon will be recognized as we complete our performance obligations, which include managing the ongoing AAT Phase 2 clinical trials for Takeda and delivering a Phase 1 ready candidate to Horizon. There remains $167.6 million of revenue to be recognized associated with the Takeda collaboration, which we anticipate to be recognized over approximately two to three years. And there remains $20 million of revenue to be recognized for Horizon, which we anticipate will be recognized by the end of calendar 2022. Revenue in the prior period primarily related to a recognition of a portion of the milestones received from our licensing collaboration agreements with Janssen and Takeda. Total operating expenses for the quarter ended March 31, 2022, were $110.3 million, compared to $61 million for the quarter ended March 31, 2021. This increase is primarily due to increased clinical candidate costs as our pipeline has expanded and advanced through clinical trial stages, as well as increased compensation expenses. Net cash provided by operating activities during the six months ended March 31, 2022, was $1.4 million compared with net cash provided by operating activities of $225 million during the six months ended March 31, 2021. The key driver of this change was the collection of the $120 million upfront payment from GSK in the current period, versus the collection of the $300 million upfront payment received from Takeda in the prior period. We continue to estimate our operating cash burn to be $60 million to $80 million per quarter in fiscal 2022 excluding any incoming milestone payments from our partners. In addition, we are expanding our manufacturing capabilities in our R&D facilities. Because these two projects have only recently begun, our capital expenditures in fiscal 2022 will be lower than originally estimated. Our capital expenditures will increase next year. Turning to our balance sheet, our cash and investments totaled $603.5 million at March 31, 2022, compared to $613.4 million at September 30, 2021. The decrease in our cash and investments was primarily due to cash used for operating activities offset by the cash collection of the $120 million upfront payment from GSK in January 2022. Common shares outstanding at March 31, 2022, were $105.7 million. With that brief overview, I will now turn the call back to Chris.

Thanks, Ken. And thanks to all of you for joining us today. The markets go through cycles of intense pressure as they are today; investors seek value. Each investor needs to define for themselves what value means. But I see value in a biotech company through several questions. Does a company have multiple potential drugs? Are those potential drugs built on a platform with known safety and activity parameters? Are those drugs addressing real unmet medical needs in a unique way? Does the company have sufficient capital and access to capital? Does the company have a track record of execution? Does the company have the ability and commitment to continued pipeline growth? And is the company focused on long term growth and getting drugs to patients? These may seem simple and straightforward, but precious few companies our size can answer all of these questions in the affirmative. I believe that we do. And by focusing on core principles such as these, Arrowhead is well positioned to do right by the patients we serve and create substantial value for our shareholders. I believe we have a pipeline that is substantially larger than any company our size and larger than most companies several times our size. Everything we do is built on RNAi and the TRiM platform, both of which are increasingly validated clinically. Whether addressing chronic HBV, where it is thought that someone in the world dies every 30 seconds from complications of infection, or cardiovascular disease, we are addressing clear unmet medical needs. And we believe we are the first to use RNAi against every target we are going after. We have a strong balance sheet and importantly, access to ongoing capital as our current partnerships mature and trigger milestone payments. We have demonstrated our consistent ability to move rapidly to the clinic and into later stage trials. Our pipeline continues to grow with three new candidates entering clinical studies over the past six months alone, and we expect more through the end of the year. While the current market dynamics are uncomfortable, we are laser-focused on getting our current and future drug candidates to the patients who need them, and trust that this commitment will create substantial value for our shareholders. Thank you for joining us today, and I would now like to open the call to your questions. Operator?

Our first question comes from Maury Raycroft of Jeffries. Your line is open.

Hi, thanks for taking my questions. I was going to ask a question on ARO-APOC3. Can you talk more about the expectations for the upcoming regulatory interaction in the spring and the Phase 2, 12-month biopsy readout and how you're planning on updating investors after the meeting has completed?

Javier, you want to address that?

Sure. As you know, Takeda is leading the interaction with the FDA from now on. So they will lead the next meeting, which is the end of Phase 2 meeting that will happen within the next few months. And that meeting, as you know, the key discussion points will be the design of the Phase 3 study that includes endpoints, sample size, etc. So that's the start with regard to regulatory; we expect to have a decision and an agreement at one point in the second half of this year. This study 2001, which was the dose-range study for the dose-ranging component is completed and it will be part of the package. As Chris said, this study will be completed in terms of biopsy by July of this year. So we have everything we need to have this meeting with the FDA. Takeda is doing a fairly good job and we're collaborating very closely. So I think we will have more about this in the next call for sure.

And to be clear, as Javier said, the dose-finding portion of that study has read out and given those data, Takeda has initiated interactions with the FDA. So that's already begun. We expect them to have a formal meeting in the coming months. And we look forward to seeing the biopsy data sometime this fall, from the SEQUOIA study. That is blinded, so we haven't seen anything there. And that's a bit of a wildcard; we look forward to seeing what those look like. And I think we have to focus on or Takeda has to focus on designing the Phase 3 right now. And then once we see those data from the SEQUOIA biopsy, we'll see if that affects their actions going forward with the FDA.

Got it. That's helpful. Will the upcoming Phase 2 meeting determine what the endpoint is? When you get the biopsy data, could the endpoint change? How should we think about that?

Yes, exactly. That inter-phase 2 meeting will, the goal is to have an agreement on this specific Phase 3 study design, which will include primary endpoint, duration, goals, and sample size. So all the details about the Phase 3 study, and also the inter-phase 2 will include CMC conversations. So everything needs to be in place to set the registration Phase 3 study right after that meeting.

Got it. Okay. And maybe just a quick question on DUX4. Just wanted to clarify if you're seeing any signals in healthy volunteers prior to starting part two, or are you just being conservative by waiting for the chronic tox data?

So, the study has not yet started in the clinic. Yes, that’s still preclinical. We have not enrolled any healthy volunteers, yet, just given in the prepared remarks in James's prepared remarks, as he described, we learned from prior clinical studies that it’s difficult to measure DUX4. And so given that, it made sense to us to slow down on the front end so we can go faster on the later stages. Therefore, we're waiting to see what those chronic tox data might look like before we design the study and initiate it.

Got it. Okay, that makes sense. Thanks for taking my questions.

Welcome.

Our next question comes from Luca Issi of RBC Capital. Your line is open.

Well, great. Thanks so much for your question. Maybe circle back on Maury’s question earlier and ask a little bit more directly. Is there a scenario where you can file early for ARO-APOC3 in the second half of the year, should the biopsy data check the box given you have breakthrough therapy designation?

Look, I don't really want to speculate on what we could do with those biopsy data, just because there are too many unknowns right now. We have to focus on negotiating with the FDA on finding common ground with them on what a Phase 3 study will look like. How large the study is, what the endpoints are, how long it will be, etc. We think we'll get there because the FDA has been quite collaborative so far. As you point out, we do have breakthrough therapy designation, so we can have these discussions. We're confident that we will work with Takeda to design a good study that will be beneficial to the ultimate drug. However, having said that, we look forward to seeing what the biopsy data look like. And once all that is unblinded, we will review it together and see how it affects our actions going forward.

Super helpful. And then on capital expenditure, I think in the past, you've guided $80 million to $90 million for fiscal 2022. However, it sounds like you're lowering that guidance. Could you provide more quantitative color on that?

Yes, we are lowering our guidance on capital expenditures this year. As I mentioned in our remarks, the two major projects have just recently started. So we might expect our CapEx to be something like 25% to 50% of what we originally estimated. And as I said, those projects will move quickly at the end of this year, but we'll increase our capital expenditures in fiscal 2023.

Super helpful. Thanks so much, guys.

You're welcome.

Thank you. Our next question comes from Madhu Kumar of Goldman Sachs. Your line is open.

Hi, this is Mario on for Madhu. We have a handful of questions. So first, can you remind us of the useful timeline for the AAT program in 2022? More specifically, can we expect top line data at a medical meeting and disclosure of regulatory interactions?

Javier, are you interested?

So we will present the data in 2022 at the meeting in London at the end of June, so that will be, I think, the only presentation. We may disclose when we complete the 2001 analysis in the second half of this year. And with regard to the regulatory interaction, we expect within the next few months to have inter-phase meetings, and the expectation is to start the Phase 3 this year.

Right. Yes. So I don't think we're expecting to provide a blow-by-blow account, but once we have alignment with the FDA on what that basically looks like, we'll be happy to disclose that.

And I wanted to also say that we're working on the manuscript for the 2002 data. So we're in the final preparations here to submit that manuscript. So hopefully it will be published this year.

Alright, thank you. And then just maybe jumping the gun for the pulmonary R&D Day in a few weeks, but what does clinical proof-of-concept look like to you for the lead loan programs?

James, do want to address that?

Yes, sure. I think we will be talking a lot more about that at the R&D day at the end of the month. But in terms of what we’re really looking for in both of these programs in Phase 1 is proof-of-target engagement, that we can knock down the targets, and that we have a good dose response there. So I think that's the most important thing we expect to get out of Phase 1.

And we have circulating biomarkers there. So it'll be much more straightforward to look at that with RAGE and MUC5AC.

And two more questions. How should we think about the upcoming Olpasiran? How far do you plan to take ARO-ANG3 and ARO-APOC3 in cardiovascular disease? Is there any plan to perform…?

Yes, so I’ll take that one first. Look, we plan right now to take ARO-ANG3 and ARO-APOC3 through to registration. We think those are potentially very important drugs. And we think that they will provide important new tools to cardiologists and lipid clinics. I’ve said this in the past, and I don’t want to overstate it, but it really feels like those are important drugs, and so we are fully committed to those. I think we’re going to commercialize those. The first question was with respect to Olpasiran. I don’t know what else I can tell you at this point. We haven’t seen any data, so there’s nothing I can share with you. We’re waiting to see what those data look like, just like the rest of you. The Phase 1 data were compelling. That looks like it’s a very potent drug candidate. I think the genetic validation with respect to that target is clear. That drug candidate appears to be doing what we want it to do. It appears to be well tolerated. And so we’re excited to see those data and to be honest, we fully expect for Amgen to push that into a pivotal study quite quickly.

Alright, thanks for taking the questions.

And our next question comes from Ellie Merle of UBS. Your line is open.

Hey guys, thanks for taking the question. Just a follow-up on the RAGE and MUC5AC programs. If you're starting to dose patients, or midyear, how should we think about the timing to seeing initial circulating biomarker data just given the potential to show proof-of-target engagement and delivery even albeit in small patient numbers? And then in terms of the C3 reprogram, given that it seems like you're progressing through the cohorts, how should we think about timing to initial data there and what you're looking to see for dose selection, such as a particular degree or level of knockdown and C3 as you think about dose selection for patients? Thanks.

Here, those are the questions I can't give you. I can't give you terribly straightforward guidance on any of those. I will say with C3 though, I do expect that we will have some, at least top-line data this year. I don't know when, and I don't know what's going to be in it. We need to finish those escalation of healthy volunteers before we look for patients. I don't know how long it'll take to dose patients in that cohort, so it's really too early to give any guidance there. But I do truly expect that we will have some data that we can talk about this year with C3; healthy volunteers so far are enrolling quite well with RAGE and MUC. We haven't started dosing patients yet. That will be, as you pointed out, sometime in the middle of the year. And so similarly, it’s a bit too early to guide when we might see any data. I expect that we’ll see data this year; but I don't know when we’ll have enough to package up in something that will be digestible by the external audience. My hope is that sometime in the third quarter we’ll have a much better idea about that.

Got it. And just a follow-up on FSHD. Maybe just in terms of the decision to sort of wait for more of the chronic GLP tox data. I mean, I guess was there anything that you saw pre-clinically that influenced this decision? Or if you could just elaborate on any sort of preclinical data points that maybe prompted this?

Yes, sure. So the key driver of this decision is what we have described already on the call is that we may not have clear evidence of PD effects or efficacy until the end of Phase 2, really. So we felt like it was important to de-risk that; if you look back at the fulcrum study, they were designed to be a longer study, and so we really wanted to make sure that the tox profile would support such a longer study.

Got it. Thanks.

And our next question comes from Joel Beatty of Baird. Your line is open.

Hi, thanks for taking the questions. The first ones on the AAT program; thinking you had the discussions with the FDA on the Phase 3 trial design. How might that trial design be different from SEQUOIA? Is there any possibility that it ends up looking pretty similar to what's already in SEQUOIA?

Well, let's revisit SEQUOIA. I don't know if you remember that we changed the design of SEQUOIA. So the initial SEQUOIA adapted to trial design that the agency objected to for the registration study is no longer in play. We amended the protocol to make it a specific dose-finding study where we enrolled patients in three dose range levels or placebo. And it’s a double-blind study. We have an initial analysis looking at the seven C protein up to week 16 for the selection. And as we said in the call, we will have the last biopsy for the 40 patients in June or July of this year. So the data will be available late. So the Phase 3 registration study will now differ from SEQUOIA; in SEQUOIA we ended up enrolling patients with F0, so no fibrosis, because that was irrelevant with regard to the seven C level of the protein for those selections, which was the primary PD marker for the selection. So it's going to be different. Of course, we need to get into the details later when we have a meeting with the agency, but it's not going to be similar to the SEQUOIA study.

Yes, that's helpful. And then under two new lung programs entering the clinic midyear, what dose levels will you be testing and how do those dose levels compare to the dosing that was used in the previous ENaC study?

We haven’t disclosed anything on starting either of those programs at this point. But it’s a good question. What you’re getting at is if we expect to use as much drug for these studies as we are for ENaC, and I think the answer is we do not want to use as much drug given the duration of the font looking for time and interval between doses.

Got it. Thank you.

And our next question comes from Patrick Trucchio of HC Wainwright. Your line is open.

Thanks. Good afternoon. Just to follow up on HIF2 in the oncology platform, there’s discussion in the prepared remarks around the program and that clear target engagement is demonstrated and that RNAi has a place in treating cancer; improvements on existing constructs are needed to move forward. I'm wondering if you can elaborate on this commentary specifically, give us an idea of when you could expect to have next-generation compound or compounds in the oncology platform ready for IND or CTA enabling studies, what improvements specifically would be expected to be part of this program compared to the HIF2 program? And would the target be the same or could we also have new targets as part of a broader oncology platform?

Sure, so first, I'll take these in parts; first, which is targets. It will be a different target. As we mentioned, the great news for clear cell renal cell carcinoma patients is that there are now good alternatives that address the HIF2 alpha pathway. And so I certainly will make bets on other targets. There are a lot of other targets, I think that we could go after. Now, with respect to timing, that's hard to know. I can't give you any guidance; certainly nothing this year. We are encouraged by the data; we are seeing knockdown, we can get into tumors, we can knockdown in tumors, that's all good news. But I think we can do a bit better. We believe we can get deeper knockdown. We think we can get more durable knockdown. So we’re trying a number of different strategies to get there. It’s still a bit early to give you too much information regarding when we think we're back into the clinic. And also, as I said before, it would make sense at some point for us to find a good partner for oncology. It's a difficult space, and it would be great if we could find a partner to work with on new targets, as well as on possible delivery strategies down the road. We’re still in the first few innings of this game. The good news is that we do believe we are on the board, and think we've gotten off to a good first start on this platform.

Yes, that's helpful. And just to follow up on the ARCHES-2 program. First, can you discuss level of confidence that the program will not have the same setback as Lupin? And secondly, what would be considered homerun data in ARCHES-2, and when the data is reporting the first half of 2023? And lastly, just how do we think about the clinical development path forward and mixed dyslipidemia in Phase 3 and potential commercial launch trajectory if the drugs are approved?

I am confident that we’re going to have a very key safety profile and a very clear pattern of efficacy. We already have a lot of data; our Phase 1 study had over 100 patients from four different types of patient populations. And the results are very consistent. So I don’t see any possibility for a drawback of any type there, so the data is already strong enough. I feel very comfortable and confident about that. The Phase 2 study is going to read out in the first quarter of this coming year, so we will have a full answer. But we're doing significant detail work internally and with partners to really understand what is the best path forward for both molecules. When you think about mixed dyslipidemia, we may talk about it in more detail in the near future. But there’s a lot of work going on to really understand who will be the patient population that might benefit from either or both of these two drugs. Their therapeutic profiles are clearly different. We believe there are patient populations that will uniquely benefit from either of these trials. But we are doing the work right now, looking at biology and how HDL interacts, as well as the major clinical databases to understand where the residual risk for cardiovascular disease is in patients with mixed dyslipidemia. So there is a lot of work that we want to finish by the end of this year. We will be ready for end of Phase 2 discussion and are already looking at opportunities with companies and CROs, etc. to think about the major cardiovascular outcome trials.

So we expect to have a cardiometabolic day later this year, and at that point, we’ll have much more to share about plans and what we see in the data. We're going to learn a lot in the next year from these Phase 2 studies; we’ve dosed a lot of patients in different populations. We’ll learn about how ANG versus APO will address various populations. Having said that, at this point, the way we're thinking about these is as follows: for APOC3, we see a good, relatively near-term opportunity in the FCS population. We think we can get to market relatively quickly there and become a commercial entity while we conduct larger, longer studies to support the use of APOC3 against severe hypertriglyceridemia. We’re also, as you know, conducting studies in mixed dyslipidemia. This provides us the optionality to potentially skip a very large outcomes trial for that compound. For ARO-ANG3, similarly, we see a possible opportunity through HoFH which is akin to the FCS opportunity where we can get to market quickly while conducting larger studies. We do believe that a large outcomes study would be beneficial for AN3, given what we have seen so far in the Phase 1 study.

That's very helpful, thanks.

You’re welcome.

And our next question comes from Mayank Mamtani of B. Riley Securities.

Good afternoon team. Thanks for taking our questions and congrats on the manufacturing facility and the formation of the joint venture. Actually, if I could go back on the topic that Chris and Javier you were commenting on continually; can you summarize for us what is the opportunity you see in improving the perception of AG PDLT as a target? Obviously, in light of what we've seen with other modalities, and given the initial promise we had from the medallions work? Just as you're thinking about the cardiometabolic day, it would be helpful if you could comment on where there might be some misunderstanding versus where maybe we need to learn something more. And then as a follow-up question on the lung programs.

Yes. So as Javier said, our data were clear in our Phase 1/2 studies. We dosed a large number of patients, we saw consistent reductions in LDL, we saw a good safety profile, and we saw consistent reductions in triglycerides. Whatever other folks saw with their drugs, it’s interesting to look at, I suppose, but I think our take-home message is that our data were strong, and we expect that to continue. We'll have a lot of data this time next year, but given the data we have so far, we feel as bullish as ever on that pathway and our drug.

Got it. And then as you start working on your Phase 1 studies for MUC and RAGE and deploy learnings from the ENaC program, just the RAD study that I think is published at a conference about, how are you thinking about the dose level versus knockdown? It looks like you're working with some lower doses here with the newer targets but like, with the ENaC it was about 66% knocked down, but I think you're getting higher knockdowns with some of these newer targets. So can you just remind us how much knockdown we need with these newer targets? And then how far along you are with the chronic tox studies for these two new programs?

Yes. Sure. So we will be presenting data on both of those programs, MUC5AC and RAGE at the ATS Conference starting next week. You are right; we previously described for ENaC a 66% knockdown in rats. We are seeing better knockdowns than that with both siRNA targeting MUC5AC and RAGE in rodents but also in non-human primates. We'll be showing some of those data. Either story is, it’s not only a matter of just lower dose levels having lower overall exposure so less frequent and dosing intervals, as Chris alluded to before are important, I think, for both MUC and RAGE. Is there another piece of that question?

Chronic tox studies, how long have you gone there in the preclinical model?

The Chronic tox has not yet started for either of those. We've completed the IND or CTA enabling tox, and that's complete for both MUC and RAGE. Let’s be clear, that’s intentional. We want to see what the durability looks like in humans before we do a chronic tox study in animals, just so we have a good idea about what sort of intervals we should be testing. Right? If we are dosing once a month, and we’ve seen durability the last 30 days, that would suggest a certain kind of chronic tox study. If we’re seeing durability the last two months or three months, that’s another one. And so we’d like to get a flavor for what we’re seeing before we start those studies.

Great. Thank you for that clarification. And then just one final question: has there been any exploratory work done on delivering RNAi to the retina or broadly CNS? As oligonucleotides have been deployed, have you done any work around that preclinically?

Yes, so we haven't talked about any other cell types that we are going after internally. But you've been around us long enough to know that we are always looking for new cell types. And so we have not disclosed what our next cell type is yet.

Okay, look forward to some of those disclosures and your pulmonary day later this month. Thanks for taking your questions.

Great. Thanks.

And our next question comes from Keay Nakae of Chardan. Your line is open.

Yes. Thank you for the question. With respect to HIF2 and going after additional oncology targets, my question is, why do that as opposed to just focusing elsewhere?

Yes, that’s a great question. I don’t mean to be flip, but we're more than just an oncology company. I think we've got the bandwidth to do both of those things. I think your point is a good one; we’ve got exciting leads and other cell types. And so if we were more bandwidth constrained, one could argue that we should slow walk the oncology a bit, but I think we can do both. And also, as I said in the prepared remarks, one of the reasons that the oncology program is important for us is that it gave us a chance to learn broadly how to deliver extrahepaticly. That will still be the case. So it makes sense strategically there. But the underlying point is strong. Oncology is difficult. We would not like to be solely an oncology company; that’s a risky endeavor. But it’s something that I think we owe to patients to investigate because I think we could do it and we’ve gotten off to a good start with the HIF2 alpha program. I think with a little tweaking, we might have something usable across other tumor types.

Okay. Thanks, Chris.

You’re welcome.

And our next question comes from Mani Foroohar of SVB Securities. Your line is open.

Hey guys, thanks for taking the question. You've always focused on speed into the clinic is one of your core competencies and philosophy of the company. One of the challenges there is to ensure that every target is appropriately vetted, and every market opportunity actually exists. So could you help us understand your rationale for why this opportunity for you in PNH? How do you think about other company diseases where online and others with many times your resources and expertise in RNAi are facing real challenges? And then secondly, are we ever going to see the further safety data that we saw in that safety signal that showed up in ENaC? Or do you intend to hold that internally and not disclose in more detail? Thanks, guys.

So with regards to PNH, specifically, what interests us there is the data from other companies with C3 inhibitions. Specifically, there is only one C3 inhibitor that is out there and approved; it has shown significant improvement, even compared to C5 inhibition in the PNH population. The issue with that C3 inhibitor is that it's a subcutaneous infusion that's given at high doses every other day, or almost daily in some circumstances. So that limitation makes equivalent C3 inhibition with a single subcutaneous dose with C3 knockdown lasting three months quite appealing. Assuming it has the same inhibition of complement activity and assuming you get the same changes in hemoglobin, I think that's pretty compelling. So that's the argument for PNH.

Okay, that's helpful. And with the speed with which you're adding programs to the clinic, how should we be thinking about the tempo of OpEx maturation over the next couple of years? You commented on the timing for CapEx being pushed out to next year. How do we think about the scaling of OpEx in proportion to the size of these studies? Will it be chunky around a lipid study, just give us a sense of how we should model that between now and say the next two to three years?

Yes, we provided guidance earlier in the year, and we expect to update that at our call two quarters from now. We only look forward really 12 months on that, and that forecaster will have more to come on that.

Okay, thanks guys.

And I’m showing no further questions. I would now like to turn the call over to Chris Anzalone for closing remarks.

Thanks everyone for joining us on the call today, and we'll talk to you next quarter.

This concludes today's conference. You may now disconnect.