Arrowhead Pharmaceuticals, Inc. Q3 FY2023 Earnings Call

Ladies and gentlemen, welcome to the Arrowhead Pharmaceuticals Conference Call. Throughout today's recorded presentation, all participants will be in listen-only mode. After the presentation, there will be an opportunity to ask questions. I will now hand the conference over to Vince Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, Vince.

Thank you, Steven. Good afternoon, and thank you for joining us today to discuss Arrowhead’s results for its Fiscal 2023 Third Quarter Ended June 30, 2023. With us today from management are President and CEO, Dr. Chris 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 Chief of Discovery and Translational Medicine, who will provide an update on our earlier stage programs; and Ken Myszkowski, our Chief Financial Officer, who will give a review of the financials. In addition, Tracy Oliver, our Chief Commercial Officer, and Patrick O’Brien, our Chief Operating Officer and General Counsel, will both be available during the Q&A portion of the call. Before we begin, I would like to remind you that comments made during today’s call contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact 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. I'd now 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. Our industry is founded on the promise of delivering new and transformative medicines. This promise can be profound, holding the capacity to save lives and enhance the quality of life for many. Arrowhead's mission is to ensure that important new therapies reach those in need, ultimately alleviating suffering whenever possible. This guiding principle fuels our purpose and inspires us to innovate at levels that set industry benchmarks and operate with unprecedented speed. However, it is crucial to also focus on risk. Our industry is rife with uncertainty, and for us to be successful, we must not only recognize the significant promise ahead but also be vigilant about the risks between conception and the eventual delivery of medicine to patients. While we embrace idealism, we also remain pragmatic. A key aspect of our role is to mitigate and manage risks wherever feasible. We have made substantial progress on this front since our last call, and I would like to frame our discussion around that progress. Let’s start with our pulmonary initiatives. We are encouraged by the initial chronic GLP toxicology results which suggest we are taking meaningful steps to de-risk our entire pulmonary franchise. For ARO-MMP7, the highest dose tested in our chronic rat study showed no observed adverse effects, affirming that even at elevated doses, we are not encountering any adverse reactions, which suggests greater exposure than would occur in humans. We anticipate similar positive results from the ARO-RAGE chronic GLP toxicology study once finalized. While we await nine-month monkey data for both candidates, our findings with ARO-ENaC indicate that rats may be the more responsive species for assessing pulmonary toxicity. Thus, the favorable rodent results are quite promising for us. Previously, we observed lung inflammation at certain GLP toxic doses for ARO-ENaC in 2021. Subsequent analyses prompted us to strengthen the efficacy of our pulmonary candidates, which we successfully achieved with ARO-MMP7, ARO-RAGE, and ARO-MUC5AC. We had confidence that these enhancements would yield improved chronic toxicology outcomes, but confirmation awaited data results. As preliminary data now emerges, we are increasingly optimistic that ARO-MMP7 and likely ARO-RAGE exhibit significantly broader toxicity windows compared to ARO-ENaC, representing a critical de-risking milestone for our pulmonary endeavors. We look forward to complete rat and monkey chronic GLP toxicology data for ARO-RAGE and ARO-MMP7 in the coming months, with chronic GLP toxicology data for ARO-MUC5AC expected next year. We have seen encouraging preliminary chronic GLP toxicology results accompanying past de-risking milestones in our pulmonary portfolio over this last quarter. Notably, the clinical data for ARO-RAGE demonstrates three key points: first, the safety and tolerability reports have been positive with no unexpected findings—essential for the viability of any new platform and treatment. Second, the activity data has been remarkable, showing consistent dose responses all the way through the top dose level. Following a single inhalation of 184 milligrams of ARO-RAGE, we observed up to 95% gene knockdown, averaging 90% across all participants—a remarkable consistency suggesting we are in the same realm as our anticipated performance with optimized liver-targeted programs. We believe RNA interference (RNAi) is a proven method for reliably lowering target gene expression, and an expectation exists, both internally and externally, that whenever we launch a new liver program, it will effectively reduce the target protein as intended. We remain hopeful that each upcoming dataset will represent significant advancements and pivotal moments for value creation. Finally, the data also indicates that ARO-RAGE has a sustained effect that supports a dosing schedule of two months or more, which minimizes drug exposure while improving our confidence in the safety profile as treatment progresses—making it a more patient-friendly option. De-risking our pulmonary platform is essential for its own sake, as we continue to identify numerous potential drugs to address various unmet medical needs, and we seem to stand alone in leveraging RNAi effectively in the lungs. This franchise alone could underpin a substantial business. However, it also exemplifies our approach to broadening the de-risking landscape of our overall operations. We believe that being a one or two-drug entity is risky, so we have always aimed to establish a diversified business model that enlarges our patient base while serving as a buffer against biological unpredictability. In our industry, the likelihood of failure is significant, and our strategy to manage risk blends innovation with rigorous effort. We’ve endeavored to develop a reliable technological platform that allows us to move swiftly in generating a variety of thoughtfully devised drug candidates. We continue to enhance and expand our TRiM platform, a modular and straightforward system capable of addressing various cell types, enabling our therapies to target diseases in ways that other RNA companies cannot. The targets for our clinical programs encompass multiple fields, facilitating rapid progress from concept to trials and through mid- and late-stage studies. Furthermore, we ensure continuity and competence across our platforms that bolster our expectations of success for new candidates, which we believe far surpass those seen in the wider biotech landscape. With the lessons derived from each candidate’s development informing future projects, our confidence in achieving favorable outcomes grows stronger over time. This trajectory suggests that a higher than average number of candidates may emerge as approved therapies compared to the industry standard. Our initiative for 2025 aligns with the growth of our platform and constitutes a substantial part of our broader risk management strategy. Having validated platforms obligate us to swiftly build and launch new medicines for our patients and stakeholders' benefit. Our goal is to develop 20 clinical-stage or marketed products by 2025. Ironically, building this extensive pipeline concurrently serves to mitigate balance sheet risks. Developing drugs is costly, and there is an argument to be made that the best method to ensure adequate funding for market entry is through a focused pipeline. We refute that notion, as we believe that meticulously designed candidates, with a better-than-average probability of success, can readily find opportunities in partner companies' pipelines. As we mentioned during our Analyst Day in June, we have nearly raised $1 billion in partnership capital over the last six years without tapping into the equity market for over three and a half years. GSK recently began a Phase IIb study of GSK4532990, previously called ARO-HSD, for NASH treatment, yielding a $30 million milestone payment for us. Additionally, Takeda has initiated the Phase III REDWOOD study of Fazirsiran for potential treatment of Alpha-1 Antitrypsin Deficiency liver disease, generating a $40 million milestone payment. We believe our partnering strategy is a solid foundation for our financing approach, uniquely suited to the caliber of our candidates and the rarity of companies proficient in developing RNAi-based therapeutics. Our partnering approach encompasses existing relationships maturing towards higher payments, new prospective partnerships that may integrate our platforms with partner targets, and fresh collaborations on current pipeline programs. Regarding ARO-DUX4, on our last earnings call, we mentioned we had paused the CTA application due to inbound interest for partnering. We are still exploring these options but have chosen to proceed with our own CTA filing for ARO-DUX4. The nature of partnering discussions can lead to delays, and we don’t know whether they will culminate in licensing agreements, so we did not want to postpone the CTA filing for our Phase I trial further. While partnering is central to our financing model, we acknowledge the risks of overextending on partnerships. We believe that retaining some wholly-owned candidates while driving toward commercialization is an optimal strategy for rapidly generating value. There are inherent risks involved, but we feel we have mitigated some of those over the past quarter. We have completed enrollment in the Phase III PALISADE study of ARO-APOC3 for patients with familial chylomicronemia syndrome, marking a significant milestone as it is likely to be the first indication for which we will pursue regulatory approval. The final visit for the last patient is anticipated for Q2 of 2024, which positions us to commence the NDA process next year. We are also formulating Phase 3 plans for severe hypertriglyceridemia and mixed dyslipidemia, with discussions with regulators on the agenda for this year. Following those conversations, we plan to initiate Phase 3 trials for these larger indications. Our wholly-owned candidates in the cardiometabolic sector, specifically ARO-ANG3, achieved critical milestones recently; at the European Atherosclerosis Society Congress, we reported that ARO-ANG3 led to LDL-C reductions of 44% to 48% when combined with standard existing treatments. These findings represent significant de-risking data as we advance toward one or more Phase 3 programs currently in the design phase. Our go-to-market strategies for multiple candidates are actively in development. We aim to have four drug candidates engaged in Phase 3 studies by the year’s end, with two wholly-owned: ARO-APOC3 and ARO-ANG3; and fazirsiran partnered under a 50-50 profit share in the U.S., retaining substantial economics. We expect our first Phase 3 registrational study readout for ARO-APOC3 in FCS to occur around mid-next year, with anticipated NDA submissions following shortly after. In reviewing our pipeline, we foresee more NDA filing opportunities arising at a steady pace. In our earlier-stage pipeline, we submitted two CTAs for new programs aimed at gene expression in distinct tissues. I already mentioned ARO-DUX4 targeting skeletal muscle for FSHD, and the other is ARO-SOD1 targeting the central nervous system for ALS. Additional CTAs will be forthcoming over the next few quarters leveraging our CNS and skeletal muscle platforms. Although these are in the early stages, they signify key de-risking developments for our prospective CNS and skeletal muscle franchises. Like our advancements in pulmonary endeavors, these initiatives reflect our ambition to extend our technology's reach and reduce overall business risk by adding value across various channels. Before I hand over the call to Javier, I’d like to emphasize the R&D Day we hosted in June, during which we provided updates and featured external KOLs discussing our ongoing clinical programs in cardiometabolic and pulmonary diseases, along with possible future strategies in CNS tissue targeting, including systemic and adipose tissue delivery. This R&D Day was rich in details, demonstrating our commitment to advancing our technology and broadening its applications. Now, I’d like to turn the call over to Dr. Javier San Martin. Javier?

Thank you, Chris, and good afternoon, everyone. We are making significant progress in the design, planning, and preparation of the late-stage studies for our cardiometabolic candidates, ARO-APOC3 and ARO-ANG3. Our aim is to hold multiple Phase 2 meetings with regulators this year and to initiate several Phase 3 studies later this year and early next year. We also plan to present final Phase 2 data at the American Heart Association meeting in November, depending on the progress of multiple studies for both ARO-APOC3 and ARO-ANG3. I would like to take a moment to review the various studies we have completed and then I will share our current thoughts on the Phase 3 studies for each clinical indication. Let's start with ARO-APOC3. This investigational RNAi therapeutic is being developed to treat patients with mixed dyslipidemia, severe hypertriglyceridemia, and familial chylomicronemia syndrome. ARO-APOC3 aims to reduce the production of Apolipoprotein C3, or APOC3, which is a component of triglyceride-rich lipoproteins and a key regulator of triglyceride metabolism. By knocking down the liver's production of APOC3 through RNAi, we can reduce VLDL synthesis, enhance the breakdown of triglyceride-rich lipoproteins, and improve the clearance of VLDL and chylomicron remnants. We believe ARO-APOC3 can address various patient populations with different disorders leading to clinical complications. Familial Chylomicronemia Syndrome, or FCS, is characterized by extremely high triglyceride levels, usually over 1,000 milligrams per deciliter, which can result in high rates of acute pancreatitis that may require hospitalization and can be fatal. Patients with FCS also suffer from chronic abdominal pain and must follow a strict low-fat diet, which affects their quality of life. FCS is rare, affecting hundreds to a few thousand patients in the U.S. Severe Hypertriglyceridemia, or sHTG, typically has triglyceride levels over 500 milligrams per deciliter, increasing the risk for acute pancreatitis and cardiovascular disease, impacting millions in the U.S. Mixed Dyslipidemia involves elevated non-HDL cholesterol along with triglyceride remnants and low HDL, contributing significantly to atherosclerotic cardiovascular disease risk. There are likely tens of millions of patients in the U.S. with Mixed Dyslipidemia that are not adequately managed with existing treatments. We have conducted or planned several studies of ARO-APOC3 for these populations. For FCS, we are conducting the PALISADE study, which is a Phase III placebo-controlled trial to evaluate the efficacy and safety of ARO-APOC3 in adults with FCS. The primary endpoint is the percentage change from baseline in fasting total cholesterol at month 10. This study was fully enrolled in May, with 75 subjects across 39 sites in 18 countries randomized to receive either ARO-APOC3 or placebo every three months. We anticipate completing the study by Q2 of 2024, followed by data analysis and NDA preparation for regulatory submissions. Participants who finish the randomized phase of PALISADE can continue into an extension where they will all receive ARO-APOC3. For sHTG, we are conducting the SHASTA-2 Phase II study with 229 patients randomized to receive varying doses of ARO-APOC3. The primary endpoint here is the percentage change in fasting triglycerides at week 24, with patients with FCS excluded from this study. The data from SHASTA-2 strongly support advancement into Phase 3, and we plan to present results at the upcoming American Heart Association meeting. Our Phase 3 plan for sHTG includes two studies: SHASTA-3 for a faster path to regulatory submission in approximately 600 patients and SHASTA-4 for patients at higher risk of pancreatitis. The SHASTA-4 study will involve patients with triglycerides over 880 milligrams per deciliter, focusing on reducing pancreatitis risk over a two-year double-blind study duration. We've made significant strides in planning these studies and aim to engage with regulators this year to quickly initiate the studies. Additional details will be shared as we begin. In the mixed dyslipidemia population, we're conducting a new Phase 2 study involving 653 patients undergoing a similar randomization process, with a primary endpoint focusing on changes in fasting triglycerides at week 24 and other lipid parameters. We believe the outcomes from these newer Phase 2 studies also support progression to Phase 3, with plans to present these results at the American Heart Association as well. The Phase 3 program for this population will be a cardiovascular outcome trial named CASCADE. ARO-APOC3 has shown promise in addressing residual risk factors for atherosclerotic cardiovascular disease, and this study will involve a carefully selected high-risk patient population. We have engaged an academic research organization to assist in study design and other critical aspects of the trial, and we plan to initiate the PALISADE study in 2024. Our approach for ARO-APOC3 is to progressively study in larger and longer trials, aiming to address a high-prevalence disease area with inadequate treatment options. For ARO-ANG3, our strategy targets a smaller, well-defined population. ARO-ANG3 is being developed for Homozygous Familial Hypercholesterolemia and potentially for Heterozygous Familial Hypercholesterolemia in the future. The Phase II program for ARO-ANG3 involved two studies, including the ARCHES-2 Phase II study and the GATEWAY Study. Interim data from the GATEWAY Study, presented recently, showed significant reductions in LDL cholesterol achieved with ARO-ANG3 on top of standard care. These results are comparable to those of an approved monoclonal antibody, but ARO-ANG3 offers a more convenient dosing regimen. We are currently working on designing the Phase III study for ARO-ANG3, focusing on HoFH and other potential populations. More details on both ARO-APOC3 and ARO-ANG3 can also be found in our R&D day presentation available on our website. Our other late-stage program is fazirsiran for treating AATD liver disease. We will continue to receive updates on the Phase II SEQUOIA study presented earlier this year, and Takeda is efficiently moving forward with the Phase III REDWOOD study, which aims to enroll 160 adult patients with F2 to F4 fibrosis, evaluating key markers of liver disease. I will now turn the call over to Dr. James Hamilton.

Thank you, Javier. Our pipeline of early-stage clinical candidates now includes eight programs addressing various diseases with gene expression in four tissue types, including liver, lung, muscle, and CNS. Of these eight programs, most are wholly-owned and in our core areas of focus; they are in pulmonary, ARO-RAGE, ARO-MUC5AC, ARO-MMP7, in cardiometabolic ARO-PNPLA3, in neuromuscular ARO-DUX4 and ARO-SOD1, and we also have ARO-C3 for complement-mediated diseases and HZN 457 partnered with Horizon for Gal. In addition, we have many undisclosed preclinical programs that should continue to feed our pipeline for years to come. We are increasingly looking for opportunities to focus around core areas and we are fortunate that our platform provides us with so many opportunities. Our discovery and clinical development teams continue to be highly productive and efficient. One main benefit of drug development based on a proprietary technology platform is that it allows us to apply learnings from prior programs to each new program. This makes us faster, more precise, and I believe, yields drug candidates with a higher probability of success. The TRiM platform has given us that advantage for liver-directed programs for a few years now. We believe we are now in a period where those same advantages exist for lung-directed programs and we have the potential to get there over the next couple of years for muscle and CNS. We held a very comprehensive R&D Day during the quarter, so I'm not going to review all of Arrowhead's discovery and early development programs. I'd like to focus on some important potentially de-risking data from our ARO-RAGE program. ARO-RAGE is our RNAi therapeutic candidate designed to reduce expression of the receptor for advanced glycation end products for RAGE as a potential treatment for inflammatory pulmonary diseases such as asthma. We are currently conducting a Phase 1/2a clinical trial in normal healthy volunteers and in patients with mild to moderate asthma. We have also recently filed an amendment to add a cohort of asthma patients with high baseline levels of fractional exhaled nitric oxide or FeNO, which is a biomarker for the degree of IL-13-driven type 2 inflammation in the lung. Let's talk briefly about what data we generated and reported at the R&D Day. First, with respect to safety and tolerability, to-date, there have been no reported serious or severe adverse events, no study withdrawals or drug discontinuations due to adverse events, and safety labs have shown no pattern of adverse changes. There have also been no changes in the pattern of airway immune cells and all chest x-rays have been read as normal. These encouraging results have also been generally consistent in the ARO-MMP7 and ARO-MUC5AC programs. With respect to activity, the results to-date, especially at the highest dose level, have exceeded our estimates and really represent a best-case scenario for target engagement. We are measuring soluble RAGE protein or sRAGE and serum after multiple doses in both healthy volunteers and in patients and in BALF after a single dose in healthy volunteers and after multiple doses at the top dose level. The mean maximum reduction in sRAGE at the 92 milligram dose level after two doses on days one and 29 was 80% with a maximum reduction of 90%, with a long duration of effect that supports every other month dosing. At the highest dose of 184 milligrams, we achieved a similar result after just a single dose, with a mean sRAGE reduction of up to 76% and maximal reduction of 91%. We also observed a continued dose response in valence with a single inhaled dose of 184 milligrams, achieving a mean reduction of up to 90% and maximal reduction of 95%. We are still collecting data that we intend to report on later this year, including presentations at the European Respiratory Society International Congress in September. We believe this is the first compelling clinical evidence of gene target silencing in the lung using siRNA. We also believe that these clinical results have a good chance of being predictive of clinical results in other pulmonary programs, including ARO-MUC5AC and ARO-MMP7 and additional undisclosed preclinical programs. And lastly on RAGE, the data we are generating over the coming months will include chronic monkey GLP toxicology results before the end of the year, which will be needed prior to Phase 2 initiation. We will be getting additional long-term follow-up data and multiple dose data at the highest doses in healthy volunteers and in patients later this year and into next year. Lastly, we will be getting data from the high FeNO cohorts, which is designed to assess if RAGE knockdown leads to an IL-13 specific anti-inflammatory effect. This study is not long enough or large enough to expect an efficacy signal, but signals of inflammatory pathway inhibition after a short course of exposure would be a welcome result. We expect these data in 2024. I also want to provide an update on our earliest clinical candidates. During the last quarter, we filed CTAs for our first muscle and CNS candidates, ARO-DUX4 and ARO-SOD1, respectively. ARO-DUX4 is the first clinical candidate utilizing the TRiM platform to target disease-associated genes in skeletal muscle. ARO-DUX4 is an investigational RNAi therapeutic designed to reduce expression of the gene that encodes the human double homeobox 4 or DUX4 protein as a potential treatment for facioscapulohumeral muscular dystrophy, or FSHD. Pending regulatory clearance, we intend to proceed with a Phase 1/2a dose-escalating study to evaluate ARO-DUX4 in adult patients with FSHD type 1. The study is designed to enroll up to 52 patients. The other CTA filed during the quarter was for ARO-SOD1, the first therapeutic candidate designed for delivery to the CNS, again, leveraging the TRiM platform. ARO-SOD1 is designed to reduce expression of superoxide dismutase 1, or SOD1 in CNS as a potential treatment for patients with amyotrophic lateral sclerosis, or ALS caused by SOD1 mutations. Pending regulatory clearance, we intend to proceed with a Phase 1 dose-escalating study to evaluate ARO-SOD1 in adult patients with ALS harboring a SOD1 mutation, which is considered to be causative of ALS. The study is designed to enroll up to 24 patients. I will now turn the call over to Ken Myszkowski. Ken?

Thank you, James, and good afternoon, everyone. As we reported today, our net loss for the quarter ended June 30, 2023, was $102.9 million, or $0.96 per share based on 107 million fully diluted weighted average shares outstanding. This compares with a net loss of $72 million, or $0.68 per share based on 105.8 million fully diluted weighted average shares outstanding for the quarter ended June 30, 2022. Revenue for the quarter ended June 30, 2023, was $15.8 million compared to $32.4 million for the quarter ended June 30, 2022. Revenue in the current period primarily relates to our collaboration agreement with Takeda. Revenue is recognized as we complete our performance obligations, which include managing the ongoing AAT Phase 2 clinical trials for Takeda. There remains $17 million of revenue to be recognized associated with the Takeda collaboration, which we anticipate will be recognized over the next year. Total operating expenses for the quarter ended June 30, 2023, were $118.5 million compared with $105.3 million for the quarter ended June 30, 2022. The key drivers of this change were increased candidate costs, partially offset by lower stock compensation expense. The increased candidate costs were primarily due to the progression of the company's pipeline of candidates into and through clinical trials, which resulted in higher outsourced clinical trial, toxicity study, and manufacturing costs. Net cash used in operating activities during the three months ended June 30, 2023, was $21.4 million compared with net cash used in operating activities of $68.9 million for the three months ended June 30, 2022. We expect our operating cash burn to be $80 million to $90 million next quarter. We expect to spend between $160 million and $180 million over the next three quarters to complete our GMP manufacturing facility and related laboratories in Verona, Wisconsin. Turning to our balance sheet, our cash and investments totaled $494.5 million at June 30, 2023, compared to $482.3 million at September 30, 2022. The increase in our cash and investments was primarily related to the $250 million payment from Royalty Pharma, as well as other licensing cash inflows, offset by our operating cash burn along with continuing capital projects. Our common shares outstanding at June 30, 2023, were $107.1 million. With that brief overview, I will now turn the call back to Chris.

Thanks, Ken. We are well on our way to reaching our 2025 goal to grow our pipeline of RNAi therapeutics to a total of 20 clinical stage or marketed products by the year 2025. However, pipeline expansion is just a means to an end. The ultimate goal and the reason we continue to invest in expanding our platform, discovering new candidates, advancing our clinical programs, and streamlining the drug manufacturing process is that it allows us to get important new medicines to patients in need as quickly and efficiently as possible. Doing this will also create a sustainable business and provide a steady stream of commercial revenue, which we now have a better line of sight on and a plan that we are executing to get there. Thank you for joining us today, and I would now like to open the call to your questions. Operator?

Thank you. We will now conduct the question-and-answer session. Our first question comes from Luca Issi of RBC Capital.

Oh, great. Thanks so much for taking my question. Just a quick one here. I'm wondering if you can comment on what was your reaction to the Roche and Alnylam's deal. I guess two questions there. Is AGT a target that you may be willing to pursue? And two, how should we think about read-through for your cardiovascular franchise? And then maybe a super quick one for Javier for severe hypertriglyceridemia. I was under the impression that you were planning a single pivotal trial with triglycerides as the primary endpoint and pancreatitis as a secondary point. However, it sounds today like you're planning two separate studies, so wondering what drove that change? Thanks so much.

Sure. So, I don't know that we have really a position on the Alnylam-Roche deal; good for them. We are not working on that target. It didn't fit into where we see opportunities in the space. And I don't think it reads through to our cardiometabolic assets. I think those are really orthogonal to each other. Javier, do you want to address?

Yes. So, hi Luca, I think when we presented the clinical program for ARO-C3 at the R&D Day, I think I mentioned that we are doing two studies. The first one, which is the one that would be the primary source of registration is the SHASTA-3, which is 600 patients approximately with TG higher than 500. We will start in parallel the study SHASTA-4 in patients with higher TG levels and recent past history of pancreatitis. That study would be approximately 200 patients, and that will not be part of the initial filing, but it will be a subsequent interaction with the agency, hopefully, to give pancreatitis risk reduction in that study and eventually add that to the label. So, it was planned, but there is a sequence here. First, SHASTA-3 registration and second, SHASTA-4 label expansion.

Okay. Thank you. Our next question comes from Maury Raycroft of Jefferies.

Hi, congrats on the progress and thanks for taking my questions. For your pulmonary platform, you've got the late-breaker title for your RAGE program at ERS next month. How much asthma patient data can we expect in this update, or will it be longer-term follow-up from this SAD and MAD healthy volunteer part of the study? And then separately, I wanted to clarify for the preclinical tox studies, are those six months or 12 months? And it sounds like you're somewhat beyond where you were with ENaC on safety; can you just elaborate more on that as it relates to the preclinical and clinical data that you've got so far?

Yes. Sure. I can take the first part of the question. The data that will be presented at European Respiratory is primarily an update on the healthy volunteer SAD and MAD duration. We may have a little bit more duration data from the first patient cohort, the asthmatic patient cohort, but we won't have additional patient data at that time. And then regarding the tox studies, this is the six-month rat tox study that Chris was referring to for both RAGE and MMP7.

Yes. So, we're still waiting on the nine-month monkey tox, and you mentioned that it sounds like we are beyond where we were with ARO-ENaC and I think that is true. We are using substantially less material in all of these candidates in the chronic tox studies, and that appears to be bearing fruit for us.

Got it. Okay, thanks for taking my questions.

All right. Thank you. One moment for our next question. Our next question comes from Patrick Trucchio of HC Wainwright & Company.

Thank you, and good afternoon. I have a few follow-up questions. First, regarding the ARO-RAGE chronic toxicity data, can you clarify if this data is expected in the third or fourth quarter of 2023? Additionally, how do you anticipate it will differ from the data reported for ARO-ENaC, specifically in terms of the doses for these compounds compared to ENaC in these studies? Also, concerning the pulmonary programs in clinical development, there are multiple programs underway, including at least one in preclinical development. Could you provide insight into which targets you may include for your expanding pulmonary platform, and to what extent you will consider targets with genetic or clinical validation as you develop this pulmonary pipeline moving forward?

I'll take the second, and Jim can take it first. I've got the easy one. The answer is we can't give you too much guidance on undisclosed targets. We are – I get your point that, of course, we will be looking at genetically validated targets and clinically validated targets, and that is always our preference. You've heard us say before, our goal here is to take as little target risk as we can. And one way to do that is to work on the most validated targets that we can. And so we will certainly be doing that. Will we expand beyond that into some targets that have less validation? Probably, but my hope is that we will, in the near to mid-term, focus on well-validated targets. James, do you want to address the tox?

Yes, sure. Hi, Patrick, thanks for the question. Regarding tox, so the doses are across the board lower for the new pulmonary programs, lower in terms of exposure. I think most importantly, less frequent. If you recall, we used a day one, two, three, every two-week dosing regimen for ENaC and then for our current programs, the dose frequency is spread out much less frequently. We're dosing either monthly or every two months in the chronic tox studies.

And if you compare the exposure, I want to say it spans from ENaC being four times to ENaC being 20 times the amount of material compared to the various newer compounds we're working on. And that is entirely a testament to how much more potent these follow-on compounds are.

Great. Thank you so much.

You’re welcome.

Thank you. One moment, while we queue our next question. Next question is from Keay Nakae of Chardan.

Hi, thanks. Question about partnering specifically for the CV assets. You're going to go it alone initially with some of these Phase IIIs, but you do have an outcome study out there planned. If you see success going in alone, does that make it more or less likely that you want to partner to do an outcome study?

So, we are planning on doing the outcome study for ARO-APOC3 by ourselves. We see that as a very interesting asset, and the data have been very compelling. So we are happy to take that on ourselves. It doesn't mean that we're not going to partner that at some point, geographically, potentially; who knows? But we are happy to take on the CVOT risk ourselves. And so that's our plan right now.

Okay. Thanks.

You’re welcome.

Thank you. One moment for your next question. Our next question comes from Edward Tenthoff of Piper Sandler.

Great. Thank you very much. Summer is going on and excited about the progress. As we look at the pipeline, what should we be expecting from C3? I know that we're in these patient cohorts now of these neuropathy and maybe IgA nephropathy. When could we get data from those? And what would be your ultimate view for advancing ARO-C3 further? Thanks.

Yes. In terms of when we should get data, we're probably looking at end of next year, so end of 2024. And what was the other part of the question?

Just how would you anticipate progressing from there?

Yes. I mean, I think it depends on what the data show us. I think there are several other examples out there of Phase III programs that are ongoing for IgA nephropathy and C3 glomerulopathy with biomarkers as primary endpoints. So, I think our late-stage programs would probably look something similar to those.

Okay. Great. Thank you.

Thank you.

Thank you. One moment for our next question. Our next question comes from Mani Foroohar of Leerink Partners.

Hey guys, thanks for taking the question. A quick one around how you think about building the CD side of the franchise. Could you lay out what your estimation is for what is that CVOT should cost for CASCADE now? Presumably, given that you plan to go it alone, I would assume that you've got a reasonable budget estimate for what that might cost. And can you walk us through sort of how we should think about sort of expansion in OpEx as you build out the infrastructure to support, what will be a larger study than you guys have ever done stand-alone before?

Sure. We are preparing estimates regarding the costs involved. However, we have not yet had our end of Phase II meeting with the FDA. We are working on our proposal and I expect we will be in discussions with them this year. Until we have that conversation and receive their feedback, it will be challenging for us to provide accurate numbers since we need more clarity. We will be happy to share estimates and guidance once those discussions take place, but at this moment, it is a bit early to do so.

Okay. So, should we expect some numerical guidance after the end of the Phase II meeting? Is that a reasonable expectation for us?

Yes. I think that is reasonable. We need to have feedback from the FDA. We need to incorporate that into our plans and then have that build it down into our budget. So sometime over the next couple of quarters, we should have a good estimate for you, and then we'll be happy to chat about it at that point.

Okay. That's helpful. Thanks guys.

You’re welcome.

All right. Thank you. One moment for our next question. Next question comes from Mike Ulz of Morgan Stanley.

Hey, guys. Thanks for taking the question. Maybe just a follow-up on the pulmonary program specifically to the MMP7 program. Can you just remind us when we might see the initial clinical data there? And should the focus be just on target knockdown, or are there other data points that we should be focused on as well? Thank you.

Yes, as we mentioned at the Analyst Day meeting, our primary focus should be on the patients, as they are the group that has regulated MMP7 in the BALF and serum. That will be our main area of concentration. Currently, we are still working with healthy volunteers in the study, so we don't have details on how the patient cohorts will enroll yet. Depending on the enrollment process, it's possible that we could have some data available by the end of next year.

Got it. Thank you.

All right. Thank you. One moment for our next question. Our next question is from Mayank Mamtani of B. Riley Securities.

Good afternoon, Dean. Thanks for taking our questions. So maybe just on the FeNO high asthma patient cohorts that you're just starting to enroll. Could you clarify the dose levels being looked at and sort of what initial number of patients you intend to have before you may look to disclose something externally? And if you could comment on how this could be the same or different relative to your execution on the mild to moderate asthma MAD patient cohort? And then I have a quick follow-up.

Sure. So there are the two highest dose levels that we're looking at in the FeNO cohort. So that's the 92 and the 184 milligram dose levels that we studied in the healthy volunteers; we'll investigate those doses in the FeNO cohorts as well. And we're doing 16 per cohort in terms of how many we'd have to have enrolled before we disclose data. I can't really give you a clear answer to that.

Yes. So let's just assume that we'll disclose those once those cohorts are complete. It wouldn't make much sense for us to feed that out dribs and drabs. I think we'll wait until that study is over.

Got it. And in terms of your asthma cohort data before the end of the year, could you just clarify, would you also include some valve bronchoscopy data also in addition to serum data on the higher dose levels? Could you just clarify that?

The asthma patients actually don't undergo bronchoscopy, so we don't have a valve data from the asthma patients. It's only the only sRAGE measure we get is from the serum in the asthma patients.

Got it. And just lastly, on the financials, the two milestones earned from GSK and the data could you just clarify how they will be sort of modeled on your P&L in terms of recorded revenue amortization schedule?

Those milestones have already been included in revenue. They are not distributed over time. We recorded them in the quarter before last, and we received the cash in the most recent quarter.

Understood. Thanks for taking our questions.

Thank you.

Okay. Thank you. One moment for our next question. The next question comes from Ellie Merle of UBS.

Hey, guys. Thanks so much for taking the question. Just a follow-up on the pulmonary patient cohort timing, I guess for RAGE, just where are you in the enrollment of those high-pheno cohorts? I think you just mentioned you had 16 per cohort. And then for MUC5AC, I guess, where are you in the enrollment of the asthma patient cohorts? And have you started enrolling in the COPD cohort? And then just for MUC5AC, what should we expect in terms of the timing of potential patient data there?

Regarding the pheno cohorts, the amendments to add those cohorts have been filed and are currently being processed by the various regulatory bodies and ethics committees. We have not yet enrolled any pheno patients. All the asthma patient cohorts for MUC5AC are currently open for enrollment. Assuming enrollment progresses well, we expect to have data by mid to late next year. As for the COPD cohorts from MUC5AC, the situation is similar to that of the pheno cohorts; the amendments are filed and are being processed for ethics and regulatory approval. We anticipate starting enrollment later this year, with the possibility of having data by the end of next year.

Thanks so much.

All right. Thank you so much. One moment for our next question. Next question is from William Pickering of Bernstein.

Good afternoon. Thanks for taking my question. So on Adipose, you gave a really interesting update at the R&D Day, but you didn't disclose the target. I was wondering what the next steps on that program are and when we might learn more about it? Thank you.

Yeah. We have not disclosed targets. We are still in the early days a bit with Adipose. We have some ideas for our targets, but we are not prepared to show any more data there quite yet. My hope is that you'll start to hear more about the clinical plan for Adipose in 2024.

Got it. Thanks. And then on HeFH, it sounds like you've become less definitive on the path forward for ANG3 in that indication versus last year. I was wondering if you could just talk about some aspects of your thinking that have evolved? And how sure you are that you will, in fact, take it forward to Phase 3?

Yeah. So I think the issue here is whether we can develop the indication of HeFH without a full cardiovascular outcome trial. And there is some precedent to support there and some other ones. So we are working our way to understand if there is a subpopulation of HeFH that can be pushed forward into a regulatory path without the requirement of the cardiovascular outcome trial. So that's kind of where we are right now.

Got it. Thank you so much.

Thank you. One moment for our next question. Next question comes from Luca Issi from RBC Capital.

All right. Thanks so much. And again, maybe circling back on RAGE, James or Javier, what are you hoping to see for the initial readout for FeNO? I understand the follow-up will be short, but what levels do you anticipate at baseline? And what kind of reduction are you hoping to see there? Again, just trying to understand what the ability for initial success there? And then maybe, Ken, if I may. I think your prior 10-Q suggested that the bill the facility in Verona, Wisconsin was going to cost 200 million to 260 million. However, the 10-Q today suggested that number has gone up to 260 million 280 million. One, is that correct? And if two, what drove that change? Thanks so much.

Ken, do you want to start that?

So we have seen certain cost increases as well as about a quarter of a delay in that project. So you will see that, that total cost comes in a bit higher than we had originally estimated. That's really it.

Yes. So Luca, we do have a good point of reference for the FeNO therapeutics effect, and that's the dupilumab and tezepelumab programs in which they saw somewhere between 40% and 48% reduction. I think it's either going to call which one, but that's the RAGE that I think we believe will be convincing that the RAGE inhibition it does work through the IL-13. So that's the range that we're seeing. I think the baseline is 20 and…

Greater than…

Greater than 20 FeNO and people with FeNO greater than 200. So it's the same population very much as those point of reference if you will, studies, and we expect to see something similar.

Got it. Thanks so much.

All right. Thank you. One moment for our last question. This question is from Brendan Smith of TD Cowen.

Hi, guys. Thanks for taking my questions. Maybe a couple of quick ones from us. First, I just wanted to ask actually about some of the CNS programs that you alluded to that you're going to announce and bring it to the clinic over the next couple of years. Really, I guess, how are you kind of thinking about which indications to move there? Are you really thinking to focus more on final indications, given that the tissue is a little bit easier to get to or really what is kind of your strategy in deciding where to go there? Kind of just trying to understand where you think is especially right for RNAi? And then if I could, just really quickly, I wanted to ask a little bit more about kind of your financing plan. Obviously, you have a decent balance sheet for now. But I mean, to your point, you haven't raised equity in a few years, but you have a fair number of important readouts coming up and a lot of studies going on. So as we're kind of just looking at cash burn over the next few years, what really is kind of your strategy for the next 18 to 24 months?

Sure. I'll take that, and then I'll let Javier and James take a prior one. So look, as I mentioned in the prepared remarks, partnering is really a cornerstone of our financing strategy. And so we are exploring a number of different options really as we speak that are important for us. There are also other avenues. We are also exploring the possibility of doing some specific product financing for APOC3. We know that's going to be a CVOT. We know that's going to be expensive. And we are exploring the cost of capital for financing that in return for some royalties on that product for some period of time, things of that nature. And I think that we can get a long way to our financing needs through those levers, and we are looking to pull those levers certainly in the near to mid-term, I think it's important for us.

We are interested in CNS targets that may involve the spinal cord as well as those in the cortex. We can achieve good knockdown in various areas of the cortex and are also exploring targets in the deeper brain, although achieving the same level of knockdown in those areas can be more challenging. We prefer targets that have some genetic validation, either being genetically defined or supported by levels of genetic validation, and ideally, we look for a degree of clinical validation from other successful modalities.

All right. Thanks.

Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to Chris Anzalone for closing remarks.

Thanks everyone for joining us today, and I hope you have an enjoyable summer, and we look forward to talking to you soon.

All right. This concludes today's conference call. Thank you for participating. You may now disconnect.