Earnings Call Transcript - ARWR Q4 2024

Operator, Operator

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

Vince Anzalone, Vice President of Investor Relations

Thank you. Good afternoon, and thank you for joining us today to discuss Arrowhead's results for its fiscal 2024 year-ended September 30, 2024. With us today from management are President and CEO, Dr. Chris Anzalone, who will provide an overview of the quarter; Dr. Bruce Given, Interim Chief Medical Scientist, who will provide an update on our cardiometabolic pipeline; Andy Davis, Senior Vice President and Head of Global Cardiometabolic Franchise, who will provide an update on commercialization activities; Dr. James Hamilton, Chief of Discovery and Translational Medicine, who will discuss our earlier-stage development programs; and Ken Myszkowski, Chief Financial Officer, who will give a review of the financials. We will then open the call to 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. I'd now like to turn the call over to Chris Anzalone, President and CEO of the company. Chris?

Chris Anzalone, President and CEO

Thanks, Vince. Good afternoon, everyone, and thank you for joining us today. Over the years, we've built platforms capable of addressing liver, lung, adipose, CNS, skeletal muscle, cardiomyocyte, and soon other cell types to bring RNAi therapeutics to where a multitude of diseases are. Any one of these would represent an important advance in human health, but together, we believe they have a revolutionary potential. I don't think it's hyperbole to say that we've created a machine that produces high-quality drug candidates if you just provide it money and gene targets. Importantly, those drug candidates can be produced quickly relative to other methodologies, and given the modality and increasingly validated nature of the platforms, we have an expectation that most will do what they are designed to do. We've always had a conviction that building and constantly expanding this machine is critical to our dual mandate of serving as many patients as possible and creating long-term durable value. In the early to mid-stages of building a company around such a machine, we require partnerships to develop and commercialize non-core assets and provide capital for us to develop and commercialize our wholly-owned assets while also reinvesting in the machine to expand its reach and capacity. When this is done well and in a timely fashion, it creates balance for us. Of late, we have become out of balance. The partnership we announced today with Sarepta is transformational because it returns balance to our business model, helps to focus our investment thesis without constricting upside potential, and puts us on a fairly straight path to profitability. Let's take a closer look at the deal. Arrowhead and Sarepta entered into a licensing and collaboration agreement that includes select programs utilizing multiple TRiM delivery systems targeting various tissue and cell types. Under the agreement, Arrowhead will advance each program to an agreed-upon milestone, and then Sarepta will assume responsibility for further development and commercialization. These include select programs from three distinct buckets. One, certain Arrowhead clinical candidates; two, certain Arrowhead non-clinical programs; and three, discovery programs to be pursued jointly between Sarepta and Arrowhead. In the clinical candidate bucket, Arrowhead is granting Sarepta an exclusive license to the following four programs. One, ARO-DUX4 as a potential treatment for patients with facioscapulohumeral muscular dystrophy type 1 or FSHD1. ARO-DUX4 is currently dosing patients in a Phase 1/2 clinical study. Two, ARO-DM1 as a potential treatment for patients with type 1 myotonic dystrophy or DM1. ARO-DM1 is currently dosing patients in a Phase 1/2 clinical study. Three, ARO-MMP7 as a potential treatment for idiopathic pulmonary fibrosis. ARO-MMP7 has completed dosing healthy volunteers in a Phase 1/2 clinical study and is currently dosing IPF patients to assess target engagement. And four, ARO-ATXN2 as a potential treatment for spinocerebellar ataxia 2 or SCA2. ARO-ATXN2 is in a Phase 1/2 study that is currently open for enrollment. In the non-clinical bucket, Arrowhead is granting Sarepta an exclusive license to three programs that utilize Arrowhead's next-generation TRiM platform for subcutaneous administration to the central nervous system. The programs are ARO-HTT for Huntington's disease, ARO-ATXN1, and ARO-ATXN3, both for spinocerebellar ataxia. Lastly, in the discovery programs bucket, Sarepta can propose up to six new skeletal muscle, cardiomyocyte, or CNS targets on which Arrowhead will perform discovery and preclinical development. Sarepta would then receive an exclusive license to those programs and be responsible for clinical development and commercialization. During the five-year term of the agreement, Arrowhead will be excluded from working on a large list of skeletal muscle targets for its internal use or in partnership with other companies. Arrowhead will also be providing contract manufacturing services to Sarepta for clinical and eventually commercial drug supply for programs arising out of our collaboration. At the close of the agreement, Arrowhead would receive the following: a $500 million upfront cash payment, $325 million through Sarepta's purchase of Arrowhead equity priced at $27.25, representing a 35% premium to the 30-day volume-weighted average price of Arrowhead stock; $250 million to be paid in annual installments of $50 million over five years; and up to $300 million in near-term payments broken up into two separate payments of $100 million and $200 million associated with the continued enrollment of certain cohorts in the Phase-1 study of ARO-DM1, which Arrowhead may achieve during the next 12 months. Arrowhead is eligible to receive development milestone payments between $110 million and $410 million per program and sales milestone payments between $500 million and $700 million per program. Arrowhead is also eligible to receive tiered royalties on commercial sales up to the low double digits. The total potential value of this deal exceeds $11 billion plus royalties. This is an important deal for both of our companies. In one transaction, it gives Sarepta multiple new promising pipeline opportunities, all with the potential to be best-in-class in areas where Sarepta has extensive development, regulatory, and commercial expertise and where clear synergies exist with their existing organization. The folks at Sarepta are specialists in these areas, and we see them as having a high potential to maximize the value of the programs and be a dominant competitor. They are an ideal partner for us. For Arrowhead, the deal answers two primary questions the market had about us. First, we've seen general acceptance that our technology works and that current and future drug candidates have a good chance of becoming important medicines, but there was a lack of clarity about how we would pay for them. This deal provides us with substantial capital immediately and potential access to very large amounts of additional funding throughout the life of the collaboration and beyond. This cannot be overstated. According to our long-term plan and budget, we are now funded toward the end of 2028 and potentially through multiple commercial launches by Arrowhead and our partners. Second, we've built a massive clinical and preclinical pipeline across different therapeutic areas that has the potential to create substantial value, but it is difficult for the market to properly value everything there, particularly when it has been unclear what would remain wholly owned versus partnered. This deal goes a long way toward providing a more manageable wholly-owned pipeline focused on areas we intend to commercialize ourselves, namely in the cardiometabolic space. This more focused pipeline allows us to take advantage of the expertise we have built in clinical development and regulatory in the cardiometabolic area and our growing medical affairs and commercial presence in the space as well. Now in the cardiometabolic area, we are focusing resources on the following: Plozasiran, which is rapidly progressing toward the commercial stage; zodasiran, which is Phase-3 ready; the APOC3, PCSK9 dimer program that we expect to file a CTA on in 2025; ARO-INHBE, which should begin enrolling a Phase 1/2 study in the next couple of months; ARO-ALK7, for which we expect to file CTA shortly and begin enrollment by mid-2025; additional undisclosed adipose-targeted programs, undisclosed CNS programs that leverage our systemic subcutaneous delivery; and possible cardiomyocyte-targeted programs. These provide us with near-, mid-, and long-term value growth and leverage common resources and expertise, making us progressively more efficient for each subsequent program. This is a solid and scalable model. A focused pipeline also allows us to manage the growth of our R&D expenses. Four clinical candidates and three preclinical programs come off our books immediately, while still moving rapidly toward patients who need them. On the discovery side, we believe we have an engine that is second to none and has the potential to create substantial value, so we will not slow that down. We now have a partner that will take advantage of our significant discovery capacity and take as many as six new candidates that we are not yet working on into clinical studies. This is a great use of our discovery engine, represents scalable value creation, and leaves us with plenty of capacity for our own future wholly-owned programs and additional partnerships. Another important piece of the Sarepta partnership that may be overlooked is the manufacturing component. Providing clinical and commercial material to Sarepta for programs included in this deal utilizes our current excess manufacturing capacity in our new Verona manufacturing plant and offsets our operating costs. It also provides Sarepta with a high-quality, cost-effective partner for important RNAi medicines it will develop and ultimately commercialize. Our cardiometabolic focus and the Sarepta license agreement together do not capture all of our promising programs. Rather, we believe there are additional programs we have that could be partnered at some point to capture additional value and ensure that they reach the patients who need them. The programs that sit in this category are the following: ARO-RAGE for asthma and COPD, which is Phase-2 ready, and we are assessing various options and designs for moving forward; ARO-PNPLA3 for MASH, which is also Phase-2 ready, and for which we are also considering options; ARO-C3 and ARO-CFB in the complement space, which should both have clinical readouts by mid-2025; ARO-MAPT for Alzheimer's and other tauopathies, as well as ARO-SCNA for Parkinson's, which both use what we believe is our very promising subcutaneous TRiM system for CNS delivery and are on schedule for CTAs in 2025. We are excited about each of these programs, and while we do not require partners immediately, our current strategy is to eventually find the right companies to develop and commercialize each one. In the meantime, we are assessing timing and possible additional development that could maximize risk-adjusted value to us. As part of this pipeline focus, we have decided not to pursue further development of ARO-MUC5AC. To be clear, this decision was not due to any emerging safety issue but rather the inability to reliably assess target engagement with the availability of biomarkers. While we still believe that ARO-MUC5AC is an intriguing target for mucoobstructive diseases, we believe that we have programs without this biomarker limitation where we can better allocate capital. We have also made great progress with our lead program and potential first commercial product, plozasiran, from a clinical, regulatory, and commercial perspective, which Bruce and Andy will discuss in a moment. We now feel like all the pieces are in place to accelerate growth. Let's review what we see as the key steps that enable that growth. We have generated important Phase-3 data in the PALISADE study of plozasiran in patients with genetically defined and clinically diagnosed FCS, forming the basis of submission of our first NDA. This is a big step for any biotech company, and we were excited to make that submission earlier this month. We now have field and home office medical affairs organizations in place within clinical development. We have also built out the key headquarters commercial infrastructure and are in the process of building out a commercial field team right-sized for this rare disease. We are confident that we will be ready for our potential first commercial launch in 2025, provided we receive positive FDA review and approval. We have also begun leveraging outsourced resources for a European commercial launch, provided we receive positive EMA review and approval, which we intend to seek in 2025. We also have a comprehensive plozasiran Phase-3 program for the large patient population with severe hypertriglyceridemia or SHTG. We believe there are 3 million to 4 million people in the U.S. making up this population, and there are very limited treatment options at present. We expect the studies needed for regulatory approval to be fully enrolled by mid-year 2025, leading to final patient visits in the middle of 2026 and potential sNDA filing at the end of 2026 or early 2027. We see this as a large patient population with inadequate treatment options that alone could make plozasiran a $2 billion to $3 billion per year drug. Further, we continue to see a big opportunity in a larger mixed hyperlipidemia market. Plozasiran has always looked like potentially powerful medicine for secondary prevention of ASCVD as well as primary prevention for high-risk patients by the KOL community we've been working with. Addressing this patient population approximately doubles our revenue forecast for plozasiran, but would require a cardiovascular outcomes trial or CVOT for approval. As such, we are waiting until we have better visibility on additional capital before launching this trial. Arrowhead now has a combination of traits that puts it in the strongest position ever in the history of the company. These include substantial immediate capital, the expectation of large amounts of additional non-dilutive capital in the coming years via existing partnerships, a lead program that is gearing up for commercial launch, a lead program that could see substantial label expansion in coming years, a focused cardiometabolic pipeline that spans early discovery to Phase-3 ready, a discovery engine capable of creating new candidates rapidly, strong partners in place for non-core assets, several non-core programs that could be partnered in the future for additional non-dilutive near- and long-term capital, and a state-of-the-art, high-capacity manufacturing facility that is qualified for clinical material now and could be qualified for commercial materials soon. With that overview, I'd now like to turn the call over to Dr. Bruce Given, who will discuss what we've accomplished with plozasiran and the status of the Phase-3 program.

Bruce Given, Interim Chief Medical Scientist

Thank you, Chris, and good afternoon, everyone. It has been an impressive year for plozasiran. We have showcased our work through impactful presentations at major international academic meetings and have published four articles in prestigious medical journals. This summer, we began our Phase-2 program for severe hypertriglyceridemia and recently submitted our new drug application to the U.S. FDA. I will highlight some key achievements. Firstly, it was a significant milestone to submit our NDA for plozasiran for familial chylomicronemia syndrome to the FDA, which has initiated their 60-day validation process. If the FDA finds our filing complete, they will notify us of the PDUFA date for the approval decision. Given that plozasiran has received breakthrough therapy designation, we are optimistic about a priority review, though this will ultimately be at the FDA's discretion. The pivotal PALISADE study database was locked on May 16 this year, showcasing a strong effort by the Arrowhead team for their first NDA. We await the FDA's filing decision with anticipation. Looking back over the past year, the data we have gathered on plozasiran is compelling. Our Phase-2 trial results were published in JAMA Cardiology and the New England Journal of Medicine earlier this year, illustrating that patients in the MUIR study with mild-to-moderate hypertriglyceridemia and those in SHASTA-2 with severe hypertriglyceridemia experienced significant and lasting reductions in Apolipoprotein C3 and triglycerides with quarterly subcutaneous dosing. These effects also positively influenced levels of remnant cholesterol, apolipoprotein B, and non-HDL cholesterol, while improving HDL cholesterol, aligning with our predictions based on genetic data and Phase-1 results. The Phase-2 data, while needing to be verified in Phase-3 studies, has provided critical insights. We evaluated doses from 10 to 50 milligrams and confidently identified 25 milligrams as optimal for efficacy while demonstrating good safety and tolerability. Accordingly, we plan to utilize this dose every three months for Phase-3 studies in both mixed hyperlipidemia and severe hypertriglyceridemia. Additionally, the reductions in lipid targets were considerable and in line with data from individuals who possess genetic variants leading to low or no activity of apo C3, suggesting a reduced risk for cardiovascular disease without negative safety concerns. Our Phase-2 results support the idea that this therapy is likely to be well-tolerated in future studies. Moreover, participants from the Phase-2 MUIR and SHASTA-2 studies were invited to enter a long-term extension study reported at the American Heart Association Scientific Sessions. Data from 418 participants indicated that lipid levels remained stable after 15 to 18 months of receiving plozasiran with no new safety concerns arising. At the European Society of Cardiology, we shared the results of our Phase-3 PALISADE study, accompanied by another publication in the New England Journal of Medicine. At the 10-month mark, we observed an impressive 80% reduction in median triglycerides for the 25-milligram dose, compared to a mere 17% reduction in the placebo group, with a statistically significant p-value. There was also a 50-milligram dosage group that yielded similarly significant outcomes. Collectively, with the results from MUIR and SHASTA-2, we are confident we have reached optimal efficacy for the APOC3 mechanism at the 25-milligram dose across indications. Both doses achieved significant triglyceride reductions, allowing us to analyze our secondary endpoints, including notable APOC3 reductions and average triglyceride decreases. Importantly, we found an 83% reduction in acute pancreatitis cases among plozasiran recipients compared to the placebo group, which is substantial. Following this, a high percentage of patients achieved risk reduction thresholds for triglycerides, with 75% below 880 milligrams per deciliter and 50% below 500 milligrams per deciliter. Several exploratory endpoints were reported at AHA, showcasing meaningful reductions in remnant cholesterol and non-HDL cholesterol alongside increases in HDL cholesterol. While LDL cholesterol levels increased, they remained within safe limits for cardiovascular risk reduction. Longitudinal data from months 1 to 12 showed consistent triglyceride reductions of approximately 80%, regardless of whether patients had genetically confirmed or clinically diagnosed familial chylomicronemia syndrome, which we consider an important finding. Overall, tolerability has been good across all study groups, with treatment-emergent adverse events primarily including abdominal pain, COVID-19, upper respiratory infections, headache, type 2 diabetes, and nausea. While we were conducting these studies, we also focused on regulatory engagement and kickstarting our Phase-3 program for plozasiran in severe hypertriglyceridemia. Our pivotal Phase-3 studies, SHASTA-3 and SHASTA-4, launched mid-year, with centers now open across the U.S., Europe, and China, and ongoing patient screening and enrollment. Additionally, we are conducting MUIR-3, a Phase-3 study for mixed hyperlipidemia aimed at gathering safety data for an SHTG supplement. These studies largely mirror Phase-2 designs, where patients will receive four quarterly doses of 25 milligrams or placebo over a year, followed by an extension if desired. We are also preparing to initiate SHASTA-5, a unique study focusing on reducing acute pancreatitis in patients with SHTG and a history of pancreatitis, not mandated by regulators but conducted to support market considerations. Lastly, we are progressing on CAPITAN, our planned outcome study with plozasiran for cardiovascular event prevention in patients with high triglycerides and a history of atherosclerotic cardiovascular disease. We anticipate completing our final protocol design in the first half of 2025 after continuous feedback from global regulatory bodies. In summary, a phenomenal 2024 is paving the way for an active and exciting 2025 for plozasiran. I will now turn the call over to Andy Davis.

Andy Davis, Senior Vice President and Head of Global Cardiometabolic Franchise

Thank you, Bruce. Just over one week ago, our team was at the American Heart Association Scientific Sessions 2024 or AHA, where we announced new results from the Phase-3 PALISADE study and the open-label extension from the Phase-2 MUIR and SHASTA-2 studies of investigational plozasiran. And the feedback we collected on site from both physicians and patient societies continues to be very encouraging. We hear lots of enthusiasm about the differentiating attributes of plozasiran, which generally fall into five value pillars that you've heard me speak about before. First, the reduction in triglycerides has been both deep and durable. In PALISADE, as Bruce mentioned, plozasiran reduced triglycerides by around 80% from baseline as early as month one and maintained this reduction with limited variation throughout the full 12-month treatment period. Second, and for really the first time, patients and their doctors see real hope of achieving triglyceride levels below guideline-directed risk thresholds associated with acute pancreatitis, such as 880 and even 500 milligrams per deciliter. Around half of the patients at the 25-milligram dose in PALISADE maintain TGs below 500 milligrams per deciliter, with approximately 75% achieving levels below 880 milligrams per deciliter. To support physician education on guideline-directed risk thresholds, we announced on FCS Awareness Day earlier this month, the launch of a new disease awareness campaign called We'll Get There Soon. A key focus of our messaging is to educate the physician community about expert guidelines from several professional medical societies, which recommend maintaining triglyceride levels below 500 milligrams per deciliter to reduce the risk of acute pancreatitis. Third, the triglyceride reductions in PALISADE were generally consistent in patients with genetically confirmed and clinically diagnosed FCS. As I mentioned at the outset, new results from PALISADE were presented in an oral presentation at AHA and simultaneously published in the journal circulation. Plozasiran at the 25-milligram dose induced rapid, deep, and sustained reductions in APOC3 of greater than minus 90% and in triglycerides of approximately minus 80%, independent of gene variants causing FCS. As Bruce mentioned, we believe this supports the potential value of plozasiran in patients with clinically diagnosed disease regardless of genetic status. Fourth, plozasiran is the first and only investigational medicine to report a statistically significant reduction in the risk of developing acute pancreatitis in patients with genetically confirmed and clinically diagnosed FCS. This important endpoint showed a statistically significant 83% reduction in the incidence of acute pancreatitis with plozasiran. This is the outcome of most importance for physicians, patients, and payers. And lastly, number five, plozasiran demonstrated favorable safety and tolerability largely similar to placebo and is conveniently dosed every three months, reducing the treatment burden on both physicians and patients with only four injections per year. To support this value proposition, we've built best-in-class medical, market access, and marketing organizations and our teams are solidly in place. As Chris mentioned, the Medical Affairs group is fielding medical science liaisons to conduct scientific exchange. And on the sales and marketing side, we've recently hired our national sales director, who will be executing our field force hiring plans over the next several months. We are on track, and we're incredibly excited about 2025 and the possibility of bringing investigational plozasiran to those FCS patients and their families who are burdened by this condition. I'll now turn the call over to Dr. James Hamilton.

James Hamilton, Chief of Discovery and Translational Medicine

Thank you, Andy. With our sharpened focus on the cardiometabolic therapeutic area, I'd like to discuss our two new programs for obesity and metabolic disease. Clearly, there have been advancements in the obesity space of late. This has created excitement in the field, and we believe our programs ARO-INHBE and ARO-ALK7 have attractive profiles and may fill gaps in the current standard of care. We held a webinar in August on the obesity and metabolic space as part of our summer series of R&D webinars. We covered the biology of these targets, our preclinical data, and our clinical plans. That presentation is still available as an archive on the website. As a high-level refresher, activation of the INHBE, ALK7 pathway instructs adipocytes to store fat. In an environment of nutrient excess, this pathway can become dysfunctional and overactive. Both targets are supported by human genetics, where loss-of-function carriers have favorable body composition and metabolic characteristics compared to non-carriers. ARO-INHBE is a GalNAc-siRNA conjugate intended to silence hepatic INHBE expression. INHBE mRNA codes for Activin E protein, which is one of the ligands binding the ALK7 on the adipocyte's surface. It's the expression of ALK7 mRNA that is targeted with ARO-ALK7, which uses Arrowhead's novel adipocyte siRNA delivery platform. ARO-INHBE and ARO-ALK7 achieved 22% and 50% reduction in fat mass, respectively, versus saline controls in a mouse diet-induced obesity model. Importantly, this is achieved with the preservation of lean mass. In the same mouse model when studied in combination with incretin therapy, inhibition of the INHBE ALK7 pathway can potentiate weight loss with lower doses of incretin therapy while simultaneously preserving lean mass. Again, for those interested, I refer you to our August Obesity and Metabolic R&D webinar for more preclinical data details. Turning to the clinical studies planned for these molecules, both Phase-1 studies will evaluate single- and multiple-ascending doses as a monotherapy in obese patients, as well as multiple doses in obese patients with or without type-2 diabetes in combination with incretin therapy. ARO-INHBE dosing should initiate very soon, and dosing with ARO-ALK7 should initiate in 2025. We look forward to providing updates on these studies throughout 2025. I will now turn the call over to Ken Myszkowski.

Ken Myszkowski, Chief Financial Officer

Thank you, James, and good afternoon, everyone. As we reported today, our net loss for fiscal 2024 was $599.5 million or $5 per share based on $119.8 million fully diluted weighted average shares outstanding. This compares with a net loss of $205.3 million or $1.92 per share based on $106.8 million fully diluted weighted average shares outstanding for 2023. Revenue in 2024 was $3.6 million as there were no new partnership or license agreements executed during the year and no major milestones from previous license agreements were triggered during 2024. Revenue in 2023 was $240.7 million; revenue in 2023 primarily relates to our collaboration agreements with Takeda, GSK, and Amgen. Total operating expenses for fiscal 2024 were $604.6 million compared to $445.7 million for 2023, an increase of $158.9 million. In 2024, operating expenses, excluding noncash stock compensation charges and depreciation and amortization, a better indicator of cash spend were $512.1 million compared to $355.1 million in 2023, an increase of $157 million. The key drivers of this change were increased research and development costs, primarily candidate costs, which is driven by clinical costs, manufacturing costs, and toxicology costs. In particular, during the third fiscal quarter, we kicked off certain large Phase-3 clinical trials for our drug candidate, plozasiran, to address further indications beyond FCS, namely severe hypertriglyceridemia or SHTG. Net cash used in operating activities during fiscal 2024 was $462.9 million, compared with net cash used in operating activities of $153.9 million in 2023. The increase in cash used in operating activities is driven primarily by higher research and development expenses as well as lower revenue versus the prior year. Our footprint expansion is complete, with only minor final payments to be made over the next few months totaling $8 million. We expect very little capital expenditures in fiscal 2025. Turning to our balance sheet. Our cash and investments totaled $681 million at September 30, 2024, compared to $403.6 million at September 30, 2023. The increase in our cash and investments was primarily related to the $450 million equity issuance as well as the $400 million debt facility, partially offset by ongoing cash burn. We expect our largest cash expenditure in 2025 to be related to the Phase-3 studies for plozasiran; we expect that costs for the ongoing studies will start to decrease in '26 and '27. Thus, a large portion of those study costs were incurred in 2024 as start-up costs, in 2025 as ramp-up costs which then start to decrease in 2026. Our other clinical studies are earlier phase studies, which require much less capital. The collaboration agreement with Sarepta brings in $500 million in upfront cash, $325 million as an equity investment priced at $27.25 per share representing a 35% premium to the 30-day volume-weighted average price and additional near-term cash of $350 million. Pro forma cash resources at September 30, 2024, including just the upfront cash and equity investment would be $1.5 billion. We estimate that this partnership agreement extends our cash runway into 2028, during which time we expect plozasiran may be approved for the additional indication of SHTG. This capital significantly enhances our balance sheet and puts us on very solid financial footing for several years. Turning to financial guidance. We expect total cash burn in fiscal 2025 to be $500 million to $550 million, of which about $62 million to $65 million is related to G&A costs. We expect similar cash burn in 2026, with G&A comprising about $65 million of spend. Incorporating debt repayments and cash inflows, we expect our cash balance at the end of 2025 to be about $1 billion. And we expect our cash balance at the end of 2026 to be between $600 million and $650 million. We believe our cash runway extends into 2028. These estimates include modest revenue for FCS but do not include potential revenue from future business development deals. So if these assumptions prove overly conservative, our cash balances may be higher. Our common shares outstanding at September 30, 2024, were $124.4 million. With that brief overview, I will now turn the call back to Chris.

Chris Anzalone, President and CEO

Thank you, Ken. As I mentioned, Arrowhead is now extraordinarily well positioned to build value in the short, medium, and long term. We think all the necessary pieces are in place to execute effectively and efficiently. We are funded into 2028 with additional non-dilutive funding expected when existing and potentially new partnerships advance through clinical studies and generate commercial products. We are building out commercial to be ready on day one for our first commercial launch of plozasiran in patients with genetically confirmed or clinically diagnosed FCS. We are eager to receive our PDUFA date from FDA, but our expectation for commercial planning purposes is to be ready to launch in mid-2025. Plozasiran, our lead program, is also in Phase-3 studies to potentially expand into the large and significantly underserved SHTG population a couple of years after we launch in FCS. If successful, that would provide a potentially large revenue stream. Aside from plozasiran, we have focused our pipeline around a cluster of cardiometabolic programs, providing some mid-term opportunities for commercial launches and multiple long-term opportunities. We also retain select key early-stage programs, providing opportunities to build pipeline value while still managing to limit growth in R&D expense. Lastly, we have a new collaboration partner with extensive clinical, regulatory, and commercial expertise to advance and commercialize multiple promising candidates outside of our cardiometabolic commercial focus. So we end fiscal 2024 in a strong position across the board and are now well positioned to execute on our long-term strategy and bring several important new medicines to patients over the coming years. Thank you for joining us today. And I would now like to open the call to your questions.

Operator, Operator

Thank you. Our first question comes from Ellie Merle from UBS. Your line is open.

Jasmine Fels, Analyst

Hi. This is Jasmine on for Ellie. Thanks so much for taking our question and congratulations on all the progress. So first, just with the deal with Sarepta, including a few FCA programs in Huntington's with the subcutaneous delivery. How are you thinking about the future of Arrowhead CNS franchise from here and particularly where else you'd like to go with the subcutaneous delivery? And then second, just curious on anything you can say about future plans for zodasiran? Thanks.

Chris Anzalone, President and CEO

Thank you for the question. We are really excited about the subcutaneous CNS platform. As you mentioned, HTT will go to Sarepta. We also have MAPT and alpha-synuclein in development, which remain wholly-owned as previously stated. However, these are not central to our business, so they may be considered for partnership at the right time. We see several promising CNS targets in the cardiometabolic area, and I expect we will develop and keep some wholly-owned CNS assets that are crucial to our cardiometabolic business, so stay tuned for updates on that in 2025. Regarding zodasiran, we are evaluating our strategy. At the very least, we see a significant opportunity in HoFH, with a protocol ready to start a Phase-3 study to support HoFH. We are also looking into other possible uses for that asset.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Luca Issi from RBC Capital. Your line is open.

Luca Issi, Analyst

Great. Thanks so much for taking my question. Congrats on the progress and obviously the deal with Sarepta. Maybe two quick ones. Bruce, if I may. We've seen Eli Lilly discontinuing their siRNA for APOC3. So wondering what was your reaction to that? And then maybe on the deal, Chris, can you just maybe provide any color on whether that deal with Sarepta was competitive? And then maybe related, lots of moving parts, obviously with the FTC, but any potential risk here in the context of what we saw a year ago between Sanofi and Maze? Any color there much appreciated. Thanks so much, guys.

Chris Anzalone, President and CEO

Sure, Bruce, why don't you go first and then I'll follow up.

Bruce Given, Interim Chief Medical Scientist

Sure. I, of course, don't know why Lilly made that decision. It's hard to assess from a distance. Plozasiran is an awfully good drug, and it may have set the bar too high. That's a possibility. But I really can't determine why Lilly would have made that decision one way or the other. Not very fulfilling for you, I know, but that's about the best I could do.

Chris Anzalone, President and CEO

All right. And thanks for the questions, Luca. So regarding the Sarepta deal, was it competitive? Sure. We were talking to other companies about large strategic deals. This one made sense to us. There's, of course, never 100% overlap with respect to what's included in these various strategic deals, but at least philosophically, we were talking to other companies about that. The potential good news here is that we also have additional assets that I mentioned in the prepared remarks that remain unpartnered that are not core to our business. Therefore, I think we have room to do additional partnerships. Nothing I don't think quite as large as what we're talking about here with Sarepta, with an overall deal value greater than $11 billion plus royalties. But I think there are still good deals we can do with other companies around other assets and potentially with discovery components. As I mentioned, we've got an extraordinarily productive discovery team that has the capacity to serve us and Sarepta as well as other partners. Regarding the HSR risk, look, who knows? I can't give you much guidance on that other than from our perspective, there does not seem to be overlap there that makes us concerned. But of course, that's not our call to make. We'll just have to see when that comes down. We expect to have a ruling 30 days after we file. So sometime, I believe early January is when we would expect to clear HSR.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Andrea Newkirk from Goldman Sachs. Your line is open.

Andrea Newkirk, Analyst

Hi, everyone. Thanks for taking my question and congratulations on the Sarepta deal. Maybe on the back of that and in the context of the debt financing that you announced on the last earnings call, how are you thinking about paying that down? And is there a particular amount that's maybe earmarked in the Sarepta deal that's obligated towards paying off the principal for that facility? And then, Ken, maybe a question for you here if you could quantify the R&D savings that you expect to realize and over what time period we could think about that? Thanks so much.

Chris Anzalone, President and CEO

Sure. We will be paying down the debt through Sarepta as well as through other deals as cash comes in; there are formulas for that. Therefore, we do expect that to contribute to paying down the debt over time. Ken?

Ken Myszkowski, Chief Financial Officer

So we've taken certain costs out of the budget, but the main components, or the biggest part of our R&D spend, relates to those Phase-3 trials that I mentioned earlier. We expect those costs to continue over the next two years and then decrease by 2027. It would depend on if there are any new large trials by that time. Over the next two years, we'd expect it to remain constant with the guidance and then decrease.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Maury Raycroft from Jefferies. Your line is open.

Maury Raycroft, Analyst

Hi. Thanks for taking my questions and congrats on the deal update today. I wanted to ask about the obesity programs. So for INHBE and ALK7, how important are these strategically to the company at this point? With obesity studies, you can get insight into efficacy relatively quickly. I'm wondering if you'll run a placebo-controlled Phase-1 and can you commit to getting data from either of these programs sometime next year?

Chris Anzalone, President and CEO

I'll take the strategic question. These are important to us strategically. Look, these are really interesting targets, genetically validated. We will be, I believe, the first ones in the clinic with INHBE and I think we'll be the first one in the clinic by a long shot with ALK7. I don't know anybody else who will be in the clinic in the near term with siRNA against adipose. So we like our positioning here. We like the genetic data. We love our animal data, and so these are important for us. To be honest, if we wanted to partner these, we could have, but these are important for us strategically. Therefore, we look forward to running these studies and seeing what we see. James, do you want to address the Phase-1?

James Hamilton, Chief of Discovery and Translational Medicine

Sure. On the Phase-1 designs, both programs are placebo-controlled in patients with obesity. The main purpose of the study are, of course, to generate an understanding around safety and PK and some early target engagement biomarker data. We have some exploratory endpoints in there, but these are primarily focused on safety, PK, and biomarkers.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Jason Gerberry from Bank of America. Your line is open.

Dina Ramadane, Analyst

Hi. Good afternoon. This is Dina on for Jason. Thanks so much for taking our question. Congrats on the deal announcement and the progress this quarter. The first one we had is more of a broad strokes question. How does the Sarepta agreement change your TRiM discovery engine prioritization by tissue type and targeted number of lead preclinical candidates that you plan to kind of accelerate into the IND stage over the near term? Like, do you plan to kind of separately advance preclinical assets for your own internal verticals or for additional partnerships? And then I just had a follow-up on your zodasiran strategy. Is it may be safe to say that we could see an execution of a CVOT when the company is in a better capital position with costs from the plozasiran studies winding down in 2026 or so? Thank you.

Chris Anzalone, President and CEO

Sure. With respect to the first question, look, we have always been interested in asking this triglyceride question in outcomes in our KOLs; we feel strongly that plozasiran could be a very powerful ASCVD drug. Therefore, we just need to wait to see better visibility on capital in order to start that. These can be expensive and time-consuming. Therefore, we just want to ensure that we've got the capital in front of us before we start that. Regarding the first question, sorry, what was that again?

Dina Ramadane, Analyst

About our bandwidth for all the targets.

Chris Anzalone, President and CEO

Bandwidth, yeah, right. So, look on discovery, we really can be an and company, not an or company. We've got plenty of bandwidth to serve Sarepta and to serve ourselves and frankly, to serve other partners. James, approximately how many nominations can we do over the last couple of years?

James Hamilton, Chief of Discovery and Translational Medicine

I mean, we've done close to double-digit nominations per year. So five to 10 per year is certainly doable, and all of the targets will probably not come in all at once from a partner.

Chris Anzalone, President and CEO

Right. So if we are in the 5 to 10 nomination range per year, this is a five-year collaboration. Therefore, over those five years, we could have dozens and dozens of nominations over that time. So we've got plenty of room to have a vigorous discovery campaign with ourselves as well as for Sarepta and other partners.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Patrick Trucchio from H.C. Wainwright. Your line is open.

Patrick Trucchio, Analyst

Thanks. Good afternoon and congrats on the collaboration. I just have a couple of follow-ups on it. Can you tell us how the clinical or preclinical programs are expected to be prioritized within the collaboration with Sarepta? And how much input Arrowhead would expect to have in that process, and separately can you tell us how the collaboration contributes to or accelerates achieving the 2025 strategy?

Chris Anzalone, President and CEO

Sure. So I'll take that one first. I don't know that it affects our 2025 strategy so much because we have one more year for 2025, and I don't know if Sarepta can move fast enough to get us a target and for us to get them something that will enter the clinic during that time. Therefore, I don't think it's relevant to 2025, necessarily. Regarding prioritization or regarding how we run those, well, so I think the clinical assets will go to them. We are happy to help them with the transition, but those will ostensibly move to them and they will continue those clinical programs, and essentially on day one, we're happy to help them, but that will be their purview. The non-clinical assets, we will get those two CTA-ready, and then they will take those over and assume all the costs and, of course, all the burden of running clinical studies with them. The same thing goes for the discovery bucket. Our job is to get them a CTA-ready package, and then they would take those for you in the clinic.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Edward Tenthoff from Piper Sandler. Your line is open.

Edward Tenthoff, Analyst

Thank you, and congratulations on the financing. It's great to see you active in the market. Regarding the $250 million over the five-year period, is that categorized as R&D funding or something else? How will that be recognized? Will it be straight-line amortized?

Chris Anzalone, President and CEO

The $250 million payment is simply a matter of timing. For accounting purposes, particularly regarding revenue recognition, we need to evaluate that in conjunction with the entire deal, which includes the upfront payment and our performance obligations. As a result, we will provide you with more details on how we plan to recognize that revenue. Essentially, it's a total of $50 million per year for five years, starting on the one-year anniversary of the deal's closing.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Mayank Mamtani from B. Riley Securities. Your line is open.

Mayank Mamtani, Analyst

Yes. Good afternoon. Thanks for taking my question and congrats on a productive quarter and the deal. Just quickly following up on the plozasiran NDA filing strategy. Could you confirm if the focus there is on the 25 mg dose level? How do you think of the total patient exposure there to be able to have that broader label that you did evaluate the study for, with and without FCS genetic confirmed patients? I do have a follow-up.

Chris Anzalone, President and CEO

Bruce?

Bruce Given, Interim Chief Medical Scientist

The filing is solely for the 25-milligram dose because it performed comparably to the 50-milligram dose. All the data for the drug and indications at 25 milligrams supports that it is the appropriate dose. We feel confident about this. Regarding the second question, if I understood it correctly, we are uncertain how the agency, specifically the FDA, will view the distinction between genetic and clinical FCS. We included clinically diagnosed FCS patients in our application at the agency's suggestion, which is significant. Ultimately, if the agency is satisfied with the NDA, discussions about specific indications will occur toward the end. I hope that answers your question, although I am not completely sure I captured it all.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Prakhar Agrawal from Cantor. Your line is open.

Prakhar Agrawal, Analyst

Hi. Thank you for taking my questions and congrats on the Sarepta deal. Maybe firstly, on the deal, how much of the data did Sarepta see on both DM1 and FSHD programs? Was it mostly limited to the SAD program, or were you able to see some of the multiple-dose data as well? And the second question is on INHBE. It's an interesting target; preclinical data are very interesting and the genetic evidence is out there. So maybe just broadly, how are you thinking about where this drug fits in the obesity landscape relative to the incretins out there commercially, and how does an RNAi therapy differentiate in obesity? Thank you.

Chris Anzalone, President and CEO

Sure. So regarding Sarepta, we have not entered the MAD cohorts yet. Currently, we only have very limited SAD data, but that’s what I saw. As for INHBE and ALK7, our goal is not necessarily to undermine GLP-1s. I believe there’s an opportunity for us to collaborate with GLP-1s, as we mentioned in the prepared remarks and also in the webinar a few months ago. In animal studies, we found that using a sub-therapeutic dose of tirzepatide in combination with either ALK7 or INHBE resulted in effective weight loss, even better quality weight loss compared to tirzepatide alone, which could be a potential application. Additionally, maintenance could be another potential use where one could use GLP-1s to lose a significant amount of weight and then maintain that weight with INHBE or ALK7. They might also serve as standalone therapies; we’ll have to see how tolerability plays out. From our perspective, the non-clinical data have been compelling, the genetic data are strong, and we are eager to find out how this will translate in humans.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of David Lebowitz from Citi. Your line is open.

David Lebowitz, Analyst

Thank you very much for taking my question. Given the large partnership with Sarepta, what are your thoughts on additional partnerships going forward? Are you intending to take a pause from that, or are you still on the lookout?

Chris Anzalone, President and CEO

I would say somewhere in between those; we are still on the lookout. As I mentioned, we were, before we did a Sarepta deal, in discussions with other companies about large strategic collaborations. Those we are no longer really considering, but there are smaller bite-size collaborations and license agreements that certainly could take place. Look, our hair is not on fire. This is an important deal for us. This gives us a lot of breathing room and gives us frankly what we needed in a number of areas. Therefore, I think we can get the right deal or deals done over time. We don't have to have that tomorrow, but I do expect more deals over some period of time. Certainly, we've got the capacity on the discovery side, and we've got the assets, both non-clinical and clinical that are not core to our cardiometabolic focus. There is ample ammunition there for additional deals.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Keay Nakae from Chardan. Your line is open.

Keay Nakae, Analyst

Hi. Yes. Thank you. Congrats on the deal. Just looking for some further clarification about the plans for lung. I think you said you're still taking RAGE into a Phase 2, maybe first half of next year. But will you look to partner that? Beyond that, will you look to pursue any other lung targets? Thank you.

Chris Anzalone, President and CEO

Sure. Look, yes, I think that ultimately RAGE should be partnered. That's going to require large and relatively complicated asthma studies, maybe COPD. With our renewed focus on cardiometabolic, it would make sense for us to find the right partner for that. We don't have to do it tomorrow. But at some point, it would make some sense to partner that. It could be that it makes sense for us to do a bit more work. Some kind of Phase-2 study, we'll see in order to increase the value of a partnership. We haven't made those decisions yet; I'm just sharing what's on the table, I guess. Look, we like the pulmonary platform. I think there's an awful lot we can do there, particularly in deep lung targets. My hope is that we continue to develop that. Again, less for ourselves, longer-term at least, less for ourselves and more for partners. It doesn't mean that we wouldn't initiate some programs, but it would mean that we'd be doing those largely on spec. My hope is that we can find partners who are interested in helping us develop the right medicines against the right targets in pulmonary.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Brendan Smith from TD Cowen. Your line is open.

Brendan Smith, Analyst

Hi, everyone. Thank you for taking my questions. Congratulations on the deal. Following up on the last question regarding the pulmonary vertical, are you seeing any inbound interest at this time, or are you engaged in discussions about potentially expanding that platform more widely? Arrowhead seems to be leading the way, but it appears there is a lot of potential for broader opportunities. I'm curious about your direction on this. Additionally, regarding plozasiran and the renewed emphasis on cardiometabolic, does this imply that pursuing a commercialization partner is not an option anymore? Do you believe you can fully commercialize it across different segments independently, or is that something you might still consider after the SHTG data prior to the CVOT readout? Thank you.

Chris Anzalone, President and CEO

Yes, we would definitely consider partnerships outside of the U.S. Within the U.S., our primary focus is on building our commercial infrastructure, mainly around plozasiran, and using that structure to promote other cardiometabolic assets as well. However, we are open to exploring some international partnerships if the right opportunity arises. Regarding lung treatments, we have had discussions with various parties, but I cannot provide a timeline for when we might finalize a pulmonary deal. The Sarepta collaboration is significant for us and gives us some flexibility. While I don't anticipate a pulmonary partnership in the immediate future, it is something we are actively discussing with other companies and will continue to pursue.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of Mani Foroohar from Leerink. Your line is open.

Ryan, Analyst

I'll add my congrats on the deal and thanks for taking our questions. So maybe first, just a follow-up on a prior question around paying down debt through the BD cash flow from Sarepta and other agreements. So does that mean you plan to utilize this new cash to cover the interest expense on the debt, or are you planning to actively pay down the principal, and the latter to what degree and on what time horizon should we expect that? And then real quick, maybe just circling back to the $300 million near-term milestone for DM1 enrollment. Any specifics you guys can provide on the $100 million and $200 million milestones and how those are achieved?

Chris Anzalone, President and CEO

Yeah, and so I can't get too granular on that; but I can tell you that has to do, as you mentioned, with the DM1 program, and it just has to do with when a certain number of patients have been dosed within some of the early cohorts. We are on track, I believe to reach that over the first three or so quarters of 2025. That can change as those studies go on, but at least right now, that's our hope and expectation. Regarding the debt, we'll be paying down both interest and principal over time as cash comes in through Sarepta as well as through other partnerships.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from the line of William Pickering as an analyst for Bernstein. Your line is open.

William Pickering, Analyst

Hi. Thank you for taking my question and congrats on the deal. You made some reference to cardiomyocyte targets during the prepared remarks, and I was wondering if you could expand on what sorts of indications you're interested in here, whether it's rare, higher prevalence? Is there a clear demarcation between the cardio targets that you want to pursue independently versus what Sarepta has dibs on? Thank you.

Chris Anzalone, President and CEO

Yeah. So I can't give you too much guidance. I can't give you any guidance, frankly, on what targets we are considering within cardiomyocytes. That's still pretty early. Our non-clinical data have been compelling, and so we view that as a platform that we can start to consider bringing into the clinic. I can tell you Sarepta has not given us any targets yet within cardiomyocytes. I don't know if they have any in particular they're thinking about right now. They just have the ability to designate some targets within cardiomyocytes as well as skeletal muscle and CNS. I don't know where they're going to go or when they're going to do that. We have some ideas on targets, so my expectation would be that probably sometime in 2025, you might hear a bit more about that.

Operator, Operator

Thank you. One moment for our next question. Our next question will be a follow-up from Mayank Mamtani from B. Riley. Your line is open.

Mayank Mamtani, Analyst

Hi. Thanks for taking my follow-up. Could you also touch on how your TFR ligand-based targeted approach is different than maybe the other main shuttle approaches being looked at? What attributes do you feel allow you to optimally target, I believe MAPT, there's a couple of approaches being looked at there? Thanks for taking my follow-up.

James Hamilton, Chief of Discovery and Translational Medicine

Yeah. Sure. So we haven't disclosed a lot of details on that. I would refer you to the webinar that we gave a few months ago; what month was that?

Chris Anzalone, President and CEO

October.

James Hamilton, Chief of Discovery and Translational Medicine

October, where we covered the CNS platforms and talked a little bit more about that specific platform and how it differentiates itself.

Operator, Operator

Thank you. As there are no further questions at this time, I would now like to turn it back over to Chris Anzalone for closing remarks.

Chris Anzalone, President and CEO

Thanks very much everyone for joining us today. This has been an important day for us with this Sarepta deal. We are excited about what that's done for us as a company. We're excited about working with Sarepta. Thank you for joining the call today, and I wish you all a happy Thanksgiving.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.