Earnings Call Transcript - ARWR Q3 2022

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 Finance and Investor Relations for Arrowhead. Please go ahead, Vince.

Vince Anzalone, Vice President of Finance and Investor Relations

Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its Fiscal 2022 Third Quarter ended June 30, 2022. With us today from management are President and CEO, Dr. Christopher Anzalone, who will provide an overview of the quarter; Dr. Javier San Martin, our Chief Medical Officer, who will provide an update on our mid-and later stage clinical pipeline. Dr. James Hamilton, our Senior Vice President of Discovery and Translational Medicine will provide an update on our earlier stage program and Ken Myszkowski, our Chief Financial Officer, will give a review of the financials. In addition, Tracie Oliver our newly appointed Chief Commercial Officer and Patrick O'Brien, who is recently promoted to 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. With that said, I'd like to turn the call over to Chris Anzalone, President and CEO of the Company. Chris?

Christopher Anzalone, President and CEO

Thanks, Vince. Good afternoon everyone and thank you for joining us today. Before I cover key events and progress during the previous quarter, I want to talk about some recent management additions that make us a stronger company today and importantly, as we grow into a vertically integrated commercial stage pharmaceutical company. We are currently conducting one Phase 3 study for a wholly-owned drug candidate, and I expect us to begin one or two additional Phase 3 studies next year. As such, there are important strategic decisions we need to begin considering that will affect how we ultimately commercialize these drug candidates. We are thrilled to welcome Tracie Oliver as our Chief Commercial Officer, to start to build out our commercial infrastructure and more immediately contribute to the planning of our late-stage programs to ensure that our future commercial requirements are harmonized with clinical datasets and ultimate drug labels. Tracie has over 30 years of global experience in the biopharmaceutical industry, leading both R&D and commercial organizations. Prior to joining Arrowhead, she had her own consulting practice focused on providing guidance to small emerging commercial stage biotech companies on the proper strategy, timelines, methods, and ultimately the build-out of new commercial organizations. Those skills and experience are critical as we look to take the next steps in our growth as a company. Prior to her consulting business, Tracie was with Shire Pharmaceuticals through the acquisition of Baxalta and was Global Head of New Product Planning and Device Strategy. Prior to that, she held several commercial roles at Baxter and Baxalta including establishing a new oncology franchise and leading the North America Immunology Business Unit and Autoimmune Franchise. Tracie began her career in the biopharmaceutical industry with Johnson & Johnson and served as Head of Ortho Biotech Nephrology Business Unit in Canada, Ortho McNeil Neurologics, and McNeil Pediatrics in the USA. As we continue with this type of growth in personnel and departments, we need to be more deliberate in our drive to continue operational excellence. There can be a tendency toward an inverse relationship between the size of an organization and its ability to operate efficiently, creatively, and rapidly. It is important to us that we maintain our operational excellence as we grow, and Patrick O'Brien, our General Counsel, will now also take on the role of Chief Operating Officer to help ensure this. I will now move on to review some of our recent progress. We view setbacks as a normal part of innovation and if we can learn something from them, they may serve as an investment in the future. The recent progress we’ve made in our pulmonary platform is a good example of this, and a powerful illustration of how fast Arrowhead can move. As you know, our first candidate in the clinic using the pulmonary targeted TRiM platform was ARO-ENaC for the treatment of cystic fibrosis. Last year, we decided to pause enrollment in the ARO-ENaC first-in-human clinical study as we further investigated some findings from a nonclinical toxicology study that suggested some local lung inflammation after chronic treatment at certain high doses. Many open questions remained. James will speak to what we learned in more detail later in the call, but after extensive investigation, consultation with internal and external toxicology experts, and additional studies, it appears that findings were consistent with what is called lung macrophage overload. Essentially, the volume of material, not necessarily the specific drug or target, was overwhelming the lungs’ clearance mechanisms and causing an inflammatory response. So, the clear way to move forward is to understand the amount of material that triggers this phenomenon and develop more potent, longer-acting candidates to stay below the assumed cumulative dose threshold. I believe we have done that for our next generation candidates, ARO-RAGE and ARO-MUC5AC, resulting in three important improvements. First, we think we can now achieve better knockdown with less exposure. Second, we think we can give a single dose as opposed to our previous need to dose on three consecutive days. And third, we believe we can now stretch the dose interval substantially. For example, ARO-ENaC was going to be dosed three times every two or three weeks, and ARO-RAGE has a duration that potentially lasts multiple months after a single dose. Each of these improvements is important on their own but together we believe they dramatically change the profile of our next-generation pulmonary candidates. So, where are we now? The work and lessons that went into this happened over an extended period, culminating this quarter – this last quarter in two important events. We held a pulmonary R&D day to go over our findings and present nonclinical data for our next generation candidates ARO-RAGE and ARO-MUC5AC, and then shortly after, we began dosing patients in two clinical studies. As I said, I think this is a great example of what Arrowhead is capable of. We went from pausing enrollment of the ARO-ENaC clinical program to initiating clinical studies and dosing human subjects with next generation candidates that potentially have dramatically improved profiles in about 12 months. There was an enormous amount of work, thought, creativity, technology, and innovation that enabled this result. The pulmonary TRiM platform is an important expansion of our technology that we expect will help a large number of patients and create a substantial amount of value, but it is just one example of how we are growing our platform. We expect many more going forward. Another set of key accomplishments during the quarter relate to execution on our later stage programs for our cardiometabolic candidates, ARO-APOC3 and ARO-ANG3. Between the two candidates, we have five active clinical studies that range from ultra-rare disease populations to high prevalence diseases. The design and execution of clinical studies for diseases on opposite ends of the size spectrum typically have different tactics and require specialized expertise. I’m happy to report that our clinical development and clinical operations teams have been successfully running all these studies. On the rare disease side, the Phase 3 PALISADE study of ARO-APOC3 in patients with FCS is efficiently enrolling patients and we have worked hard during the quarter to identify and open new countries and sites that should contribute to rapid enrollment of the study. In addition, during the quarter we initiated the Phase 2 GATEWAY study of ARO-ANG3 in patients with HoFH. This study is also enrolling patients efficiently and we look forward to seeing data in the future. On the high prevalence disease side, we have three ongoing studies. For ARO-APOC3 we are running the SHASTA-2 Phase 2 study in patients with severe hypertriglyceridemia and the MUIR Phase 2 study in patients with mixed dyslipidemia. We have executed well on both studies, and we believe we are on schedule for readouts in both studies in 2023. In fact, we recently reached total planned enrollment for MUIR. For ARO-ANG3, there is one high prevalence disease study, the Phase 2 ARCHES-2 study in patients with mixed dyslipidemia. This study was fully enrolled earlier in the year and should be complete at the end of the year and enable a readout in the first half of next year. The other two accomplishments from the recent quarter that I want to highlight are related to corporate goals that aim to maximize the value of our technology over the long term. First, we announced that we broke ground on the construction of a new commercial scale manufacturing facility and received awards of up to $18.5 million in incentives to invest in the local region and create new jobs. This is an important investment in Arrowhead’s future as a vertically integrated commercial stage pharmaceutical company. It helps us control the manufacturing process both operationally and strategically for our wholly-owned programs and potentially for our partnered programs in the future. It potentially reduces the cost of our clinical and commercial drug supply and, importantly, helps eliminate any future bottlenecks related to drug manufacturing. Lastly, related to corporate goals, during the last quarter we also announced that Arrowhead formed Visirna Therapeutics, a joint venture with Vivo Capital in which Arrowhead is a majority shareholder, to expand the reach of innovative medicines in Greater China. Arrowhead licensed four investigational RNAi therapeutics to Visirna for cardiometabolic diseases in mainland China, Hong Kong, Macau, and Taiwan. Vivo Capital provided $60 million in initial funding to Visirna. This transaction potentially allows us to expand our reach into geographies that are beyond our core focus while retaining a substantial economic interest. So in summary, Arrowhead had a productive quarter where we saw progress in our pipeline of industry-leading RNAi therapeutics, our wide-reaching and expanding TRiM technology platform, and our corporate goals. With that overview, I’d now like to turn the call over to Dr. Javier San Martin. Javier?

Javier San Martin, Chief Medical Officer

Thank you, Chris, and good afternoon everyone. First, I want to highlight data on the Phase 2 2002 study of fazirsiran, formerly called ARO-AAT and TAK-999, presented in July at the EASL International Liver Congress and published simultaneously in the New England Journal of Medicine. The presentation generated significant enthusiasm within the audience, welcoming positive data to address a liver disease with no approved therapy and the validation of a New England publication. Fazirsiran is a potential first-in-class investigational RNAi therapy designed to reduce production of a mutant form of alpha-1 antitrypsin protein, called Z-AAT, as a potential treatment for the rare genetic liver disease associated with alpha-1 antitrypsin deficiency. Z-AAT accumulation is believed to be the cause of progressive liver disease in patients with AAT deficiency. Reducing production of pro-inflammatory Z-AAT protein has the potential to halt the progression of liver disease and potentially allow the liver to regenerate and repair. The data from this program are exciting and encouraging. The open label AROAAT-2002 Phase 2 study in 16 patients with AATD liver disease suggest a strong effect and the potential to improve multiple downstream markers of liver health. Decrease in fibrosis severity of at least 1 stage occurred in 7 of 12 patients, or 58%, receiving the 200-mg dose, including 2 patients with cirrhosis. All patients had reductions in accumulated total mutant Z-AAT in the liver with a median reduction at week 24 or 48 of 83%. Reductions in liver Z-AAT concentrations were also associated with histological improvements in inflammation. After treatment, all patients had a decreased histological globule burden, with the mean score decreasing by 69% at week 24 or 48. Biomarkers of liver injury were also reduced. At baseline, mean ALT concentrations were above the upper limit of normal range in all cohorts. After treatment, ALT concentrations decreased in all cohorts from week 16 through week 52. All 12 patients with ALT concentrations above the upper limit of the normal range at baseline had reductions to normal levels at week 52. In addition to activity and efficacy measures, safety and tolerability measures continue to be encouraging. Fazirsiran was generally well tolerated in the 2002 study. Over a period of 1.5 years, there were no deaths, discontinuations of treatment with fazirsiran, or dose interruptions. The most common adverse events that emerged or worsened after the first administration of fazirsiran were arthralgia and transient increased concentrations of blood creatinine kinase. There were no apparent dose-dependent increases in the frequency or severity of adverse events. So far, there have been no major pulmonary adverse events resulting in drug or trial discontinuations. Four of the six patients who entered the trial while receiving AAT augmentation therapy had a history of emphysema, and none reported exacerbations. Fazirsiran Phase 2 placebo-controlled SEQUOIA study has also reached the end of the treatment period. We collected the final 12-month biopsy from the final patient recently and will now be processing samples and analyzing data over the coming months. The deadline is in September to submit a late-breaker to present at the AASLD Liver Meeting in November. The timing will be tight to have enough data to justify a late-breaker, so it is a low probability that we will be presenting data at that congress. We should, however, have a rather complete dataset on SEQUOIA in the fourth quarter of this year, so we and our partners at Takeda will together determine the best way to communicate those results publicly. Regarding status of a Phase 3 study, we and Takeda are in the process of having discussions with regulators on the development path. We do not want to comment specifically on those discussions as they are ongoing. Moving on to our cardiometabolic candidates, I will provide the status of the VISTA studies of ARO-ANG3 and the SUMMIT studies of ARO-APOC3. The VISTA program of ARO-ANG3, our investigational medicine designed to reduce production of angiopoietin-like protein 3 as a potential treatment for patients with dyslipidemia, has two ongoing studies. The first, ARCHES-2 in 204 patients with mixed dyslipidemia, is fully enrolled. We anticipate that ARCHES-2 will be complete around the end of 2022 and topline data will be available to share in the first half of 2023. In addition to the planned study period, patients will be eligible to continue in an open-label extension period after completing the week 36 visit. The second active study of ARO-ANG3 is GATEWAY in up to 16 subjects with homozygous familial hypercholesterolemia, or HoFH. We anticipate that this study will be fully enrolled by the end of the year, and we intend to share data in 2023 when possible. Moving on to ARO-APOC3. The SUMMIT program of ARO-APOC3, our investigational medicine targeting apolipoprotein C-III being studied in patients with various lipid disorders, has three ongoing studies: two Phase 2 studies; SHASTA-2 in patients with severe hypertriglyceridemia, or sHTG; and MUIR in patients with mixed dyslipidemia; and the Phase 3 PALISADE study in patients with familial chylomicronemia syndrome, or FCS. MUIR has now reached the total planned enrollment of 320 patients. We have a number of patients still in screening, so we will allow some additional patients to join the study but are not screening any new patients. SHASTA-2 has enrolled over 80% of the planned number of patients and we anticipate full enrollment this year. This would allow for both studies to be completed in 2023. PALISADE is planned to enroll approximately 72 patients with FCS. We continue to open new clinical sites around the world and enroll new patients into the study. We are still on schedule and anticipate that PALISADE will reach full enrollment in the middle of 2023, which would allow for study completion in 2024. I will now turn the call over to Dr. James Hamilton. James?

James Hamilton, Senior Vice President of Discovery and Translational Medicine

Thank you, Javier. Some updates on some of our earlier stage development programs. Let’s start with the pulmonary platform. As Chris mentioned, we hosted an R&D day on our emerging pipeline of pulmonary targeted RNAi therapeutics and the technology platform that these candidates are built upon. We have learned a great deal about the platform with details provided in the archived pulmonary R&D Day webcast available on our website. In summary, we believe that we now have improved siRNA triggers with longer pharmacodynamic duration allowing less frequent dose administration, which are less likely to overload lung clearance mechanisms and/or are less likely to induce pulmonary inflammation. This gives us increased confidence in the platform as we move forward with current and planned future clinical studies and additional toxicology studies. We also presented preclinical data on the development of our next generation pulmonary candidates, ARO-MUC5AC and ARO-RAGE, which have recently begun dosing in clinical studies, and on ARO-MMP7, which will be approaching clinical studies later this year. ARO-MUC5AC is the first investigational medicine to directly silence expression of pathologic MUC5AC, a mucin protein with upregulated expression in the asthmatic airway, and potentially address muco-obstructive disease, characterized by mucus hypersecretion, in a fundamentally different way than current therapies. Preclinical results have shown deep silencing of up to 70% to 90% of induced MUC5AC expression in mice and primates. In a sheep model of allergic asthma, ARO-MUC5AC effectively preserved airway function. ARO-RAGE is an investigational medicine designed to reduce expression of the receptor for advanced glycation end products that aims to achieve broader anti-inflammatory effects compared to current biologics and with a more convenient inhaled mode of administration. Preclinical studies have shown that single inhaled doses of ARO-RAGE in rats and primates led to reductions of greater than 90% in lung RAGE mRNA and in serum sRAGE protein, a circulating biomarker for RAGE target engagement in the lung. Pharmacodynamic response appears to be highly durable, enabling bimonthly or quarterly dosing. Earlier this month we announced that we had dosed the first subjects in Phase 1/2a clinical trials of both ARO-MUC5AC and ARO-RAGE. We have since completed dosing the first cohort of healthy volunteers in both studies. Both studies have three parts consisting of single ascending and multiple ascending doses in normal healthy volunteers, and multiple dose cohorts in asthma patients with dose levels selected for patient cohorts based on data from normal healthy volunteers. The third pulmonary program we discussed at the R&D day is ARO-MMP7, our newest and previously undisclosed candidate designed to reduce expression of matrix metalloproteinase 7, or MMP7, as a potential treatment for idiopathic pulmonary fibrosis, or IPF. MMP7 plays multiple roles in IPF pathogenesis, including promoting inflammation and aberrant epithelial repair and fibrosis. Silencing MMP7 expression in a rat IPF model reduced inflammatory cell infiltration, limited lung fibrosis, and preserved pulmonary function. We are conducting CTA-enabling work and preparation now, and we are on track to file this year to initiate first-in-human clinical studies. Our last early-stage clinical program is ARO-C3, our investigational RNAi therapeutic designed to reduce production of complement component 3, or C3, as a potential therapy for various complement-mediated diseases. We are approaching the final healthy volunteer cohort in Part 1 of a Phase 1/2 study. Data from Part 1 will inform dose selection for Part 2, which will include eligible subjects with paroxysmal nocturnal hemoglobinuria, or PNH, and complement-mediated renal diseases, including IgA nephropathy and C3 glomerulopathy. We anticipate that Part 2 of the study will start before the end of the year. I will now turn the call over to Ken Myszkowski. Ken?

Ken Myszkowski, Chief Financial Officer

Thank you, James, and good afternoon everyone. As we reported today, our net loss for the three months ended June 30, 2022 was $72.0 million or $0.68 per share based on 105.8 million fully-diluted weighted average shares outstanding. This compares with a net loss of $29.9 million, or $0.29 per share based on 104.1 million fully-diluted weighted average shares outstanding, for the three months ended June 30, 2021. Revenue for the quarter ended June 30, 2022 was $32.4 million, compared to $45.9 million for the quarter ended June 30, 2021. Revenue in the current period primarily relates to our collaboration agreements with Takeda and Horizon. Revenue will be recognized as we complete our performance obligations, which include managing the ongoing AAT phase 2 clinical trials for Takeda, and delivering a phase 1 ready candidate to Horizon. There remains $142.1 million of revenue to be recognized associated with the Takeda collaboration which we anticipate will be recognized over approximately 2 years, and there remains $13 million of revenue to be recognized for Horizon, which we anticipate will be recognized by the end of calendar 2022. Revenue in the prior period primarily related to the recognition of a portion of the milestones received from our license and collaboration agreements with Janssen and Takeda. Total operating expenses for the quarter ended June 30, 2022 were $105.3 million, compared to $77.8 million for the quarter ended June 30, 2021. This increase is driven by higher employee compensation expense including stock compensation expense, as well as higher R&D discovery expense. Net cash used by operating activities during the quarter ended June 30, 2022 was $68.9 million, compared with net cash used by operating activities of $29.6 million during the quarter ended June 30, 2021. The increase in cash used by operating activities is driven by higher expenses in research and development expenses. We expect our operating cash burn to be $70 million to $80 million next quarter and I will provide additional guidance during our year end conference call. Turning to our balance sheet, our cash and investments totaled $582.4 million at June 30, 2022, compared to $613.4 million at September 30, 2021. The decrease in our cash and investments was primarily due to cash used for operating activities, mostly offset by cash inflows from GSK and by the cash investment in our Joint Venture, Visirna. Our common shares outstanding at June 30, 2022, were 105.8 million. With that brief overview, I will now turn the call back to Chris.

Christopher Anzalone, President and CEO

Thanks, Ken. We have a large and growing pipeline of clinical drug candidates, providing us with the opportunity to help millions of patients and create a substantial amount of value. It also affords us the opportunity to regularly report clinical data so stakeholders can follow our progress. However, with the development of next generation pulmonary candidates and the timing of other studies, we have been in a bit of a data desert over the last several quarters. We are now emerging from that desert. Between now and the end of next year, I expect at least 12 clinical readouts between our wholly-owned and partnered programs. They include the following: one, Biopsy data from the SEQUOIA study in AAT with fazirsiran; two, Phase 1/2 data from ARO-C3 in healthy volunteers and different patient populations; three, Phase 1/2 data from ARO-RAGE in healthy volunteers and patients; four, phase 1/2 data from ARO-MUC5AC in healthy volunteers and patients; five, phase 2 data from olpasiran in Amgen’s LP(a) study; six, phase 2 data from the ARO-ANG3 ARCHES-2 study in mixed dyslipidemia; seven, phase 2 data from the ARO-ANG3 GATEWAY study in HoFH; eight, phase 2 data from the ARO-APOC3 MUIR study in mixed dyslipidemia; nine, phase 2 data from the ARO-APOC3 SHASTA-2 study in severe hypertriglyceridemia; ten, phase 1 data from ARO-MMP7 in healthy volunteers and possibly IPF patients; eleven, phase 2 data from various Janssen studies of JNJ-3989 in HBV patients, and twelve, phase 1 data from Janssen’s NASH study with JNJ-0795. We are excited about these and other programs and look forward to updating you on our progress. Thank you for joining us today and I would now like to open the call to your questions. Operator?

Operator, Operator

Our first question comes from Luca Issi with RBC.

Luca Issi, Analyst

Thanks so much for taking my questions, I have two quick ones. Maybe one Javier, congrats on publishing obviously, in the New England Journal of Medicine. I think the 100 milligram dose and the 200 milligram dose have essentially hyper-imposable PD curves in the serum. However, the improvement in fibrosis only occurred in the high dose and not in the low dose. So just wondering, what's the best way to rationalize that difference? And then maybe quickly on the cash position, you're obviously still fairly well capitalized, however your OpEx and CapEx are both going up. So wondering how you're thinking about options to extend your runway. Thanks so much.

Javier San Martin, Chief Medical Officer

Thank you Luca for the question. This is Javier. So if you think about the 2002 study, we enrolled 12 patients in the 200 milligram dose, four of them had a biopsy at six months, and eight of them at 12 months. And we only enrolled four patients in the 100 milligram dose, and they all had a square biopsy in between six months. With a carrier that one of the four patients, the 100 milligram, we know had the square biopsy, so we can report in those patients. So we only had three patients in the 100 milligrams that have had very robust effects on the C-protein, ALT, liver C-protein, globule and inflammation, but we didn't see a change in fibrosis at that early point in those three patients. So I think it's a little bit about the small numbers. In contrast, as you say, in the first patient that received 200 milligrams, we saw all the improvement in the different biomarkers and parameters. We also saw 7 out of 12 improvements in fibrosis. I think the reason here is likely to be the small sample size, the variability of – within fibrosis, which is well known. And you’re right, that the PD effect is very consistent between the 100 and 200 milligrams. But we believe that when you put all the data together, absence of any safety issue between 100 and 200, very consistent suppression of the C-protein. When you look at the PK and PD, there are small differences that I think favor the 200 milligram dose. So I think when you put all the information together, the efficiency to 200 milligrams as they start to move forward. And as I say the difference in fibrosis is likely to be variability in a small sample size.

Ken Myszkowski, Chief Financial Officer

I will address the cash question. I feel confident in our cash position at the moment, mostly due to our six partnerships with five different companies, which are progressing nicely. We expect to access a significant amount of capital from these partnerships over the next 12 to 24 months, giving us a positive outlook on that revenue. Additionally, we excel at advancing new drug candidates into clinical trials, and we currently have a pipeline of 10 or 11 candidates, which I anticipate will grow to 20 in the coming years. This expansion will provide valuable resources for future deals. We will be selective in our partnerships, aiming for the majority of our pipeline to be wholly-owned, allowing us to commercialize ourselves, while also having opportunities to partner on noncore assets. I expect to pursue about one new deal each year, although this may vary annually. Overall, this approach should provide us with the capital we need in the near term.

Operator, Operator

Our next question comes from Maury Raycroft with Jefferies.

Unidentified Analyst, Analyst

This is on for Maury. Can you set some expectations for the Phase 2 AAT - SEQUOIA and the effect size you'd expect there too?

Christopher Anzalone, President and CEO

I don’t think we should delve into that yet. We haven’t received that data, but we are eager to see it. The data we have reviewed so far has been consistent, as Javier mentioned. We’ve observed stable circulating AAT levels across patients in a few cases from the open label study, and we’re optimistic about a logical response in 6 to 12 months. We look forward to reviewing this data, although I don’t want to set any specific expectations. However, I don’t anticipate any significant changes to the overall narrative. My hope is that the SEQUOIA data will reinforce the current outlook.

Operator, Operator

Our next question comes from Ted Tenthoff with Piper Sandler.

Ted Tenthoff, Analyst

I guess, picking up a little bit on the last question and again, appreciating that. Walk us through sort of how you guys are seeing the potential paths forward, how you and Takeda are sort of discussing it following the data, for AAT?

Christopher Anzalone, President and CEO

I'm a middle child, and I like to give people what they want, but I can't provide that information. We are in discussions with the FDA, and we'll just have to wait and see how that progresses. We believe we are aligned with the FDA in recognizing the significance of this disease and the absence of effective treatment for liver disease associated with AAT. We have what is likely the only option in the clinic that truly offers hope for these patients. My hope is that we can reach an agreement with the regulators soon. However, I can't provide any specifics on where that's headed. Regarding the SEQUOIA data, I think it could be beneficial as it provides us with more data. I hope it aligns with what we've observed in the smaller open-label study and aids in our discussions. Ultimately, we'll have to see how things unfold.

Operator, Operator

Our next question comes from Ellie Merle with UBS.

Ellie Merle, Analyst

Regarding the pulmonary franchise, if I understood correctly, you've completed dosing in the first group of healthy volunteers for MUC5AC and RAGE. We're starting with single ascending doses in these volunteers, but I was wondering if we're monitoring biomarkers or protein levels to gather data points on target engagement. As you transition to multiple dosing in patients, could we also potentially obtain biomarkers related to target engagement early on, even during the healthy volunteer dosing? Additionally, if you are measuring these, how do you define the timeframe in which we could learn more about this? Thank you.

James Hamilton, Senior Vice President of Discovery and Translational Medicine

Certainly. We have finished the first cohort for both ARO-MUC5AC and ARO-RAGE, which is a single ascending dose study. We start with the lowest dose, and in the MUC5AC study, we will measure MUC5AC serum levels as well as MUC5AC expression in bronchial lavage fluid. While there isn't a blood biomarker for MUC5AC, we have collected serum and BAL samples, but we haven't received the results yet due to a delay. For RAGE, there is a valid blood biomarker, S-RAGE, which will be collected from all healthy volunteer and patient cohorts. We will also assess serum RAGE levels and RAGE in the BAL fluid. Therefore, there are several different biomarkers that we can evaluate in both studies.

Christopher Anzalone, President and CEO

And regarding data flow, I believe we will have results from those studies in 2023. To be more specific, there might be opportunities to release data before the complete studies are finished, but we currently lack visibility on that since the studies are still ongoing and fairly early. Therefore, the best guidance I can provide is that I expect full data in 2023, but I cannot comment on the potential for partial data before that.

Ellie Merle, Analyst

In terms of your internal assessment, even though these are healthy volunteers, you may gain some insights from these markers regarding whether you're engaging the target, possibly even in the near-term.

Christopher Anzalone, President and CEO

I think that's fair. Data from healthy volunteers will provide us with valuable insights. As James mentioned, we have samples, but we haven't observed any results yet. Therefore, we currently have no data. Additionally, I believe these are very low doses, so I'm not sure if we would observe any impact at these levels. However, your point is valid, and I believe we can learn from the healthy volunteers.

Operator, Operator

Our next question comes from Joel Beatty with Baird.

Joel Beatty, Analyst

What's the outlook currently for your platform for oncology programs?

Christopher Anzalone, President and CEO

So I definitely learned a lot this year and last year with the ARO too. As we said in the past, I think there is two market has changed a bit. And so it didn't make sense for us to push that candidate forward. I also think that we learned a lot about knockdown in oncology, the good news was, I think we saw it and I think we can do better. And so it's, we are looking to continue to develop that platform. We have nothing in the near-term and don't expect anything this year in oncology, but we'll see where that goes going forward. It's not a real core of ours, but we do think there's value there and we do think that RNAi may play a role in oncology at some points. So we're still working on it.

Operator, Operator

Our next question comes from Madhu Kumar with Goldman Sachs.

Madhu Kumar, Analyst

One on AAT and one on the pulmonary program. So on AAT, I just got a question we get a lot from people. What do you think is the effective placebo rates of fibrosis improvements, and do you think you can use the fraction of patients that are are worsening of fibrosis in the Phase 2 open label extension study as an effective proxy for kind of slanting variability style placebo effects on kind of liver fibrosis improvement and worsening? And then on the pulmonary programs, we mentioned the idea of biomarker changes in healthy volunteers, and in patients. I guess one question we get from people is when you set to see kind of assessments of clinical benefit in the MUC5AC and RAGE programs, kind of clinical proof of concept metrics for those pulmonary RNAi programs?

Christopher Anzalone, President and CEO

Javier, you want to take this?

Javier San Martin, Chief Medical Officer

As you know, neither biopsies nor histology are very reliable, especially with the fibrosis core systems, and typically require two pathologies within the biopsies. This was the approach we took in both the 2002 SEQUOIA studies. Based on the interesting variability and data from some natural history studies, about 20% of individuals may experience regression without treatment, while another 20% may see a 30% progression over two to three years, as indicated by at least one relatively small study. In terms of NASH, the figures are similar, showing a 20% decrease without intervention. This variability makes it difficult to interpret those studies. Regarding your second question about how many individuals had an increased score in the 2006 study, two of the 15 patients showed an increase at one point after a substantial decrease in C-protein in the liver and globule burden, with both reaching zero; one started with a score of nine, which was the highest. The overall goal was to reduce inflammation, and even though they experienced a one-point progression in fibrosis, this highlights the reality that liver biopsies present challenges. Consequently, proper studies with the right methodology are essential to accurately assess histology, which is exactly what we are undertaking.

James Hamilton, Senior Vice President of Discovery and Translational Medicine

And then on the pulmonary front, I think for MUC5AC, if you look at the levels of MUC5AC expression in patients in the asthmatic versus expression in a healthy volunteer, they probably need significant knockdown. So to start to see a change in phenotype based on MUC5AC knockdown, you're probably looking at 70% plus knockdown. And then there's not the similar correlate for RAGE based on our animal data in the two different rodent models. Again, you need to achieve significant knockdown, good magnitude of knockdown. So probably better than 70% to 75% knockdown, but I think the more is better for both of those.

Madhu Kumar, Analyst

On the timing, like when can we expect data that test like for its vital capacity and things, and trials disease trials?

James Hamilton, Senior Vice President of Discovery and Translational Medicine

Of course, we'll look at that in our current study. But that's not the focus of the current studies, that are really more focused on biomarkers. So I don't know, we've talked timing on functional readouts like that.

Christopher Anzalone, President and CEO

My expectation is that to truly assess those functional changes, we need to rely on the Phase 2 studies. I don't anticipate seeing those results until we reach that stage.

Operator, Operator

Our next question comes from Patrick Trucchio with HC Wainwright.

Patrick Trucchio, Analyst

Good afternoon and congrats on all the progress. I have a couple of follow-up questions. So first is on ARCHES-2 the top line data is expected in the first half of next year. I'm wondering if you can discuss what you'd be looking for in this data and discuss the anticipated differentiation from ANG3 from . And why we should not expect ANG3 to have a similar outcome that came from that Phase 2b translate trial?

Javier San Martin, Chief Medical Officer

So the first part of a question, yes, we has taken trial data in the first half of next year. That means we are starting to work on the next step, Phase 2. So this will enable a Phase 3 study. So I think I want to emphasize the relevance of this data in the first half of next year. So the comparison I don't think is possible, two different drugs, two different technologies. We haven't seen in our Phase 1 study any of this, I mean it's not very clear yet reported from them. So at this point, we have no concern with regards to seeing any unexpected safety findings with no collaboration.

Patrick Trucchio, Analyst

And then just with the GATEWAY program with HoFH, this study is fully enrolled with the data to follow in 2023. I'm wondering if you can discuss the anticipated paths for approval in HoFH and what you would need to demonstrate in this GATEWAY program from safety and efficacy perspective? And is there a potential for an accelerated review? And finally, what would the potential commercialization look like in this patient population? Would you look to launch this on your own or with a partner? And just lastly, I guess how large of an indication could this ultimately be?

Javier San Martin, Chief Medical Officer

HoFH is a rare condition, and there is an approved drug that follows a similar pathway with an antibody. We are conducting our first proof-of-concept study, which will serve as our benchmark for comparing our approach with the ANGPTL3 antibody. We already see an advantage since our treatment will be administered every three or six months through subcutaneous injection. We need to assess and compare our data against theirs to determine if we are competitive in terms of efficacy, safety, and tolerability. The market for this condition is relatively small, and while there will be competition from the antibody, we believe our profile positions us well for competition. Our development process for this indication is solid, and we're planning a relatively small, placebo-controlled study. If our profile meets or exceeds that of the original antibody, we will proceed. This area has a significant unmet medical need, and we aim to provide a more convenient treatment option.

Christopher Anzalone, President and CEO

And also, I want to say the GATEWAY is not fully enrolled. So we’ve said we were enrolling efficiently, but it's not yet fully enrolled.

Operator, Operator

Our next question comes from Keay Nakae with Chardan.

Keay Nakae, Analyst

Question about PALISADE. Last quarter, you talked about some trouble with some of the plant sites in Eastern Europe. Just wondering now what the outlook is in terms of how you're set up to enroll these patients. Again, how difficult are they to find?

Javier San Martin, Chief Medical Officer

The only reason we didn't have any travel in Europe is that this is a Phase 3 study without a Phase 2 study. Regulatory agencies and some ERDs raised concerns about potential gaps in data moving from where we are to the Phase 3 study. We addressed all those comments and questions, and I believe we are now in very good shape to receive approvals to conduct this study in many countries worldwide. It's important to recognize that, as we mentioned to regulatory agencies, by the time the Phase 3 PALISADE study is completed, we will have conducted two relatively large Phase 2 studies that will be part of the regulatory process. The good news is that we have received some pushback from regulatory agencies, but so far they have accepted and understood the plan, and the study is getting approved globally, including in Japan, where we have had similar discussions. The study is currently in final negotiation, and we anticipate being ready to start enrollment in Japan within a month or so. There are no unexpected delays other than additional regulatory work confirming that we were prepared for the Phase 3 study.

Christopher Anzalone, President and CEO

And I just want to say to your point about sites in Eastern Europe. Look, our clinical and regulatory teams have done incredible work here. We have a number of sites that are planned for Belarus, Ukraine, and Russia. And in one fell swoop, we lost all those, of course. But they've done a great job finding additional sites and we are on track with all of those studies, thanks to their work.

Operator, Operator

Our next question comes from Mani Foroohar with SVB Securities.

Mani Foroohar, Analyst

I'm wondering, we've been at the topic about a couple of times around the pulmonary platform, the clarity you gave around macrophage overloads really helpful. As you pursue more effective, more potent approaches to allow lower absolute dose, what metrics will you be tracking? And what will your bar be to disclose further evidence of macrophage activation, any additional toxicology signals that pop-up as you track how effectively or ineffectively you're threading the needle on delivered dose and macrophage activation?

James Hamilton, Senior Vice President of Discovery and Translational Medicine

I think we've already discussed the acute tox results at the Analyst Day a while back. And as a reminder, in the acute IND-enabling or CTA-enabling studies that the tox dose was the for both MUC5AC and for RAGE. And there were no adverse findings in either of those tox studies. And then we will, in the near future initiate chronic tox studies as also described during the Analyst Day event, I think we can really spread the doses out in those chronic tox studies. So just overall less exposure to those studies compared to what we did in ENaC. And then in terms of results of those studies, I don't know if we've guided on timing to disclose chronic tox study results.

Christopher Anzalone, President and CEO

It's generally not our practice to disclose toxicity results. However, as we receive more data, we will have a better understanding of the toxicity index we should expect. During our pulmonary R&D day, we presented slides that indicated what we believe is the safe threshold for material volume, and we're confident that MMP7, MUC5AC, and RAGE are significantly below that threshold. If you compare the expected dosing for MUC and RAGE, which are currently in clinical trials, to ARO-ENaC, you'll see that we're administering less drug and doing so less frequently. Previously, dosing occurred three consecutive days every two weeks; now we are considering one dose every month or even less frequently, and at a lower dosage. We're optimistic about being able to navigate this situation effectively. The challenges we face are not excessively daunting, but we'll gain further insights as we evaluate the knockdown effects and review chronic toxicity data.

Operator, Operator

Our next question comes from Mayank Mamtani with B. Riley FBR.

Mayank Mamtani, Analyst

So just a strategy question for ARO-ANG3? Will you wait for the GATEWAY study results before determining next steps for ANG3 on the dyslipidemia indication based on ARCHES? And the reason I ask is that Lilly has a similar study like ARCHES listed on clinical trials.gov that could make it a very competitive situation now that earlier forms like the antibody or the less safe modality has cleared out. So just curious, will you wait out for your HoFH results?

Christopher Anzalone, President and CEO

Yes, we have some ideas about what Phase 3 will look like. However, we need to examine the data before we design those studies. We feel confident about our competitive position, particularly with RNAi compared to antigens and antibody competitors. In short, we have many ideas for Phase 3, but we won't make any definitive decisions until we analyze the data. I expect that as patients come forward, it will be interesting to see if certain populations respond better than others. There's no substitute for data, so we will wait to see what it reveals.

James Hamilton, Senior Vice President of Discovery and Translational Medicine

I would also like to mention that we won't have to wait for GATEWAY. Both GATEWAY and ARCHES should have results available around the same time. GATEWAY is an open-label study, while ARCHES-2 is fully enrolled and expected to complete by the end of the year. Therefore, we anticipate having results from both studies simultaneously.

Mayank Mamtani, Analyst

And then on average, have you disclosed the specific dose levels, you're going up during the NAV because you say through the end lower than ENaC, but I don't know how that cuts across absolute dose levels and frequency?

James Hamilton, Senior Vice President of Discovery and Translational Medicine

I think we’ve disclosed the actual dose levels, and then with the simple study design.

Christopher Anzalone, President and CEO

It showed there was a

Javier San Martin, Chief Medical Officer

I think, we did.

Christopher Anzalone, President and CEO

There was a slide that indicated the magnitude of dose levels in the tox studies, but I don't think the exact doses were disclosed.

James Hamilton, Senior Vice President of Discovery and Translational Medicine

In any case, the dose frequency is certainly less than what we were doing with ENaC.

Javier San Martin, Chief Medical Officer

ENaC was staying 1, 2, 3 every two weeks. And here it's just one day, every two or four weeks.

James Hamilton, Senior Vice President of Discovery and Translational Medicine

Single dose for day 1, day 29.

Mayank Mamtani, Analyst

And then my final question, just curious about the milestone payment structure with the Amgen LP(a). Is there anything specifically structured around them initiating or along the way of executing our CV outcome studies in any, is there any milestones associated there?

Christopher Anzalone, President and CEO

Unfortunately, we can't provide guidance on the magnitude of milestones or individual triggers. However, it is quite common to have a milestone payment for Phase 3 initiations.

Operator, Operator

Our next question comes from Prakhar Agarwal with Cantor.

Prakhar Agarwal, Analyst

So I had two. First a clarification on AAT. Is the biopsy sampling and the reading protocol between 202 and Phase 2 SEQUOIA trial similar or are there any changes that we should be aware of? And second, on long-term strategy for the CV portfolio, recent CV launches continue to be slow, even for companies with strong existing infrastructure in the space, had 35 million in sales in first half and Novartis is still working through some of the logistical hurdles. So how much of these are the slow CV launches shaping your view about keeping the different assets in house versus looking for partners who already have the infrastructure? Thank you.

Javier San Martin, Chief Medical Officer

With the AAT program, the biopsy assessment is the same for both studies. We have two pathologists who are trained to read the results together. If they agree, that concludes the assessment. If they disagree, a third pathologist will determine which of the two initial assessments is the final result. The procedure and process remain consistent, and since the same pathologists are involved, I anticipated uniform results from these studies.

Christopher Anzalone, President and CEO

Our ability and willingness to commercialize our cardiovascular assets independently has not changed. We believe these drugs have consistently shown promising data. There are clear applications for both drug candidates. Increasing evidence suggests that elevated triglycerides may impact outcomes for certain patients, and historically, there hasn't been significant options to manage triglycerides. For instance, fish oils may only reduce triglycerides by about 18% to 30%, while APOC3 shows reductions of up to 90% or more, which significantly shifts the results. These represent substantial opportunities for us, affecting a large patient population, and we are committed to pursuing the commercialization of these drugs on our own.

Operator, Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Chris Anzalone for closing remarks.

Christopher Anzalone, President and CEO

Thank everyone for joining today. We look forward to talking to you again next quarter.

Operator, Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.