Arrowhead Pharmaceuticals, Inc.

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

Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its 2021 fiscal year ended September 30th, 2021. With us today for 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 pipeline, and Ken Muskowski, our Chief Financial Officer, who will give a review of the financials. In addition, Dr. James Hamilton, our Senior Vice President of Discovery and Translational Medicine, will be available during the Q&A session of today's 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. 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. With that said, I'd like to turn the call over to Christopher Anzalone, President and CEO of the company. Chris?

Thanks, Vince. Good afternoon, everyone, and thank you for joining us today. Before I review the last quarter, I want to discuss the announcement this afternoon regarding our license agreement with GlaxoSmithKline for AeroHSD, our investigational therapeutic, in a Phase I-II study that is currently being developed as a treatment for patients with NASH. Upon closing, GSK will receive an exclusive license to develop and commercialize AeroHSD in all territories except Greater China, which will be retained by Arrowhead. GSK will be wholly responsible for further clinical development and commercialization outside of Greater China. Partnership is a great fit for us because GSK has articulated a clear commitment to genetic medicine. It has substantial capabilities to clinically develop AeroHSD for NASH and has impressive commercial infrastructure and expertise to bring this potentially important medicine to the tens of millions of patients who need it. This is also an important transaction because it enables us to take a large spend over the next several years off our books and focus our development capital on programs that we may commercialize ourselves. In addition, it brings in substantial non-dilutive capital while providing us with exposure to future success should this drug candidate offer patients the kind of benefits we believe possible. Arrowhead will receive an upfront payment of $120 million and is eligible for the following additional payments. $30 million at the start of Phase 2, $100 million at the start of Phase 3, up to $190 million at launch in the U.S. and major markets, and up to $590 million at for key sales milestones. Taken together, Arrowhead stands to receive up to $1.03 billion. Arrowhead is further eligible to receive tiered royalties of mid-double digit to 20% on net product sales. From a strategic standpoint, this deal is another demonstration of our ability to use partnering selectively in areas that are outside of our commercial focus. this also feels like the right time to partner because we believe our clinical data from the Phase I-II study demonstrate proof of concept for inhibiting the liver production of HSD17β13. We presented data at AASLD earlier this month showing deep dose-dependent reductions of intrahepatic mRNA and protein levels and a marked reduction in ALT. We believe these are compelling results. The next steps for this program, if we had decided to retain global product rights, would have been to initiate a placebo-controlled Phase II study to evaluate whether HSD17-beta-13 inhibition over time would lead to clinically significant improvements in NASH. The published genetic data suggests that people with loss-of-function mutations in HSD17-beta-13 have some level of protection against fibrosis associated with NASH and other liver diseases. We think we have shown that AeroHSD does what it is designed to do, However, there have not been any prior HSD17 beta-13 inhibitors studied in clinical trials, so human proof of concept of a clinical benefit needs to be established in future clinical studies. This is where GSK steps in. They have a global reach and extensive experience and resources in clinical, regulatory, medical affairs, and commercial. They are in a strong position to pick up the program and advance it efficiently. As I mentioned, We think this deal is a net positive for the AeroHSD program and the patients with NASH. We are confident that GSK is the right company to take the next steps in clinical development and to chaperone the program through regulatory and commercial opportunities that lie ahead. We are thrilled to welcome GSK as our newest partner and look forward to working with them to advance this potentially important new medicine toward patients in need. I'll now move on to some of the recent highlights and accomplishments during the prior quarter and the period since our last call. Our collaboration and license agreement with Janssen, which we signed in 2018, covered our Hepatitis B program, previously called Arrow HPV and now called J&J 3989, and three potential additional programs that we would develop pre-clinically for Janssen. J&J 75220795 is the first program for which Janssen exercised its option to take an exclusive license, which earned Arrowhead a $10 million milestone payment earlier in the year. J&J 75220795, currently in a Phase I clinical study, is an investigational RNAi therapeutic developed using Arrowhead's proprietary trim platform and is designed to reduce expression in the liver of PNPLA3 as a potential treatment for patients with NASH. PNPLA-3 has strong genetic and preclinical validation as a driver of liver fat accumulation and damage. During the quarter, Arrowhead earned an additional $10 million milestone payment after Janssen dosed the fifth patient in a Phase I clinical study. Staying with the Janssen collaboration, data was presented at AASLD from REAF-1, a Phase IIb study to assess the efficacy and safety over 48 weeks of monthly subcutaneous injections of JNJ3989, at a dose of 40, 100, or 200 milligrams. This was used on top of daily nuke therapy, with or without daily oral J&J 6379, one of Janssen's capsid assembly modulators, or CAMs. J&J 3989 is an investigational RNAi therapeutic that targets all HPV RNAs, thereby intended to reduce levels of all viral HPV proteins. The primary endpoint of the study is the proportion of patients meeting NUC stopping criteria, which is ALT levels less than three times the upper limit of normal, HBV DNA less than the lower limit of quantitation, HBE antigen negative, HBS antigen less than 10 IU per ml at the end of treatment. Data from 24 weeks off treatment was also presented at ASLD. The data were very encouraging to us. the greatest reduction in S antigen was observed in J&J 3989 200 mg with new cohort. A dose-dependent response was observed in other cohorts and didn't appear that adding the CAM had any beneficial effect. At week 48, the mean reduction in S antigen from baseline was 2.6 logs, and 74.7% of patients achieved S antigen less than 100 IU per ml. 19.1% of patients met NUC stopping criteria, the primary endpoint. Up to week 72, an additional 10.6% of patients met stopping criteria for a total of 29.7%. This is an important finding. Additional patients continued to meet stopping criteria six months after therapy was removed. We are eager to see data with longer follow-up and individual patient profiles for the study. If you recall, the studies with our first-generation compound, ARK520, in which some patients went on to achieve functional cures, the S-antigen clearance didn't happen within six months of therapy being removed. Some patients took 9, 12, 18 months or longer to clear S-antigen, so we are excited to see additional results from Reef1. We are also eager to see data from the various other studies that Janssen is conducting. These include the ongoing Reef 2 study, where patients come off all therapy as they achieve new stopping criteria, an ongoing study in patients with HPV and the hepatitis delta virus, which is a patient population in desperate need of therapeutic options due to the rapid progression of the disease, and various studies with immunomodulatory agents added. There are currently multiple studies ongoing with pegylated interferon, called Penguin, and a study called Osprey, which is with a DNA vaccine J&J 64300535. We have been extremely impressed with how comprehensive the development program is for J&J 3989, and we believe it has the potential to play a central role as a backbone therapy for chronic HPV. Staying with AASLD, we also presented additional data on Arrow AAT, also called TAC999, our investigational candidate designed to treat liver disease associated with Alpha-1 antitrypsin deficiency, which received breakthrough therapy designation from the FDA during the quarter and is being co-developed with Takeda. We presented additional interim clinical data from the ongoing AeroAAT 2002 study, an open-label Phase II clinical study to assess the response of AeroAAT in approximately 16 patients with AATD-associated liver disease and baseline liver fibrosis. We think the data continue to reflect that AeroAAT is highly active against its target. Specifically, the data suggest that AeroAAT strongly inhibits production of the mutant ZAAT protein, which we believe has been well established as a clear cause of progressive liver disease. Further, the data suggest that livers in these patients are clearing the accumulated ZAAT and may be showing signs of healing. In this study, AeroAAT treatment led to a 72 to 100% reduction of liver Z-AAT protein. Aero-AAT treatment reduced histologic globule burden in all patients, with 13 of 13 patients having a one-point or greater reduction in the PASD globule burden. Aero-AAT treatment also may have improved liver fibrosis. Six patients had a one-point or greater improvement in metavera fibrosis stage from baseline to week 24 or 48. Since the presentation, we analyzed an additional 12-month paired biopsy that showed improvement in fibrosis, giving us 7 of 15 with fibrosis improvement now. When looking only at the 200-milligram cohorts, we saw 7 of 12 patients with improved fibrosis. AeroAAT treatment also improved multiple biomarkers of liver health. The mean reduction of ALT from baseline ranged from 42% to 56%, and from 33% to 54% for GGT at week 28 and week 72. Importantly, all groups showed normalized ALT and GGT following treatment. We believe these are all encouraging data. The program is on schedule, and we continue to be confident about its potential. We have begun a productive dialogue with the FDA about approval endpoints and the potential for an accelerated approval pathway. We look forward to continuing this dialogue as the Sequoia study continues. We expect to have data on the reduction of circulating levels of AAT from Sequoia over the next few months, which should allow us to select a dose to move forward with. We should also be collecting the last 12-month biopsy from the last patient enrolled sometime in the summer of 2022. Let's now move on to Arrow HSD, which is our investigational candidate designed to treat NASH that we announced today has been licensed. to GSK. We presented data at AISLD on the pharmacodynamic effect of AeroHSD and safety of various dose levels. In AeroHSD 1001, a Phase 1-2 clinical study, we observed a dose-dependent pharmacodynamic effect on hepatic HSD17-beta-13 mRNA in all patients. At the 200-milligram dose, all patients showed greater than 90% mRNA reductions. Hepatic HSD 17 beta 13 protein levels were reduced in all aero HSD dose levels with multiple measurements below the assay's lower limit of quantitation. Decreases in ALT and AST were observed at doses of 100 milligram aero HSD and greater. Aero HSD was well tolerated in all patients with no drug-related serious adverse events reported, no adverse events leading to drug use continuations, and no drug-related clinically significant adverse laboratory trends observed. We believe these data suggest that AeroHSD is highly active at silencing liver production of HSD17 beta-13. There is clearly an enormous unmet medical need for patients with NASH, and we look forward to GSK designing future studies to evaluate the compound in a phase two and beyond. Moving to our wholly-owned cardiometabolic pipeline, Javier will give an update in a moment on the studies that are ongoing and their status, but I wanted to highlight another recent data presentation. At AHA last week, we presented additional Phase I-II clinical data on AeroApoC3, Arrowhead's investigational therapeutic targeting apolipoprotein C3, or ApoC3, being developed as a treatment for patients with hypertriglyceridemia, severe hypertriglyceridemia, and familial chylomicronemia syndrome, or FCS. The presentation was assessing four genetically confirmed FCS patients and 26 patients with multifactorial chylomicronemia, which we refer to as MCM or non-FCS. The latter patients tend to have extraordinarily high triglycerides and exhibit the same or similar phenotype as genetically defined FCS. We wanted to evaluate whether there is a different response to AeroApoC3 in these two groups. This is important because we are now initiating a phase three study of AeroApoC3, which Javier will describe. In our study of patients with FCS compared with non-FCS, AeroApoC3 achieved similar levels of reduction of ApoC3, similar changes in QLIVET parameters, and similar and comparable safety parameters. ApoC3 was reduced by 98% in FCS patients and 96% in MCM patients. Both groups showed similar maximum median reductions in triglycerides of 91% and 90%, respectively. Non-HDL cholesterol was reduced by 58% and 49%, respectively. and HDL cholesterol was increased by 152% and 111%, respectively. Across our programs, preclinical data have been largely predictive of early clinical data, and early clinical data has been predictive of later stage clinical data. We see this with respect to pharmacodynamic response and safety and tolerability. I believe this is part of what makes RNAi and Arrowhead special, and one of the main reasons we can go into early clinical development with confidence that we have a good idea about what to expect. In our view, this serves to increase the probability of success and potentially reduce risk. That brings me to our newest clinical program. Arrow C3 is an investigational therapeutic designed to reduce production of complement component three, or C3, as a potential therapy for various complement mediated diseases. During the quarter, we announced the previously undisclosed candidate, we filed a CTA to begin clinical studies, and hosted a key opinion leader webinar to discuss the complement pathway and the diseases we will initially focus on. These include IgA nephropathy, complement III glomerulopathy, and paroxysmal nocturnal hematuria. There are also other renal and hematologic diseases that we intend to evaluate in the future. The complement pathway is complex, and we did our best in the webinar to explain why we think A C3-targeted drug has the potential to address multiple complement-mediated or complement-associated diseases. We in the KOLs also explained the theoretical advantages that an RNAi therapeutic like Arrow C3 may have over other mechanisms and other complement targets. If you haven't listened to the webcast, I recommend you view it on our website for more information about Arrow C3. This is an early clinical program, but as I mentioned, we have a good track record of preclinical data translating well to clinical studies for investigational medicines developed with the TRMM platform. I'd like to provide a quick update on our pulmonary programs, including aeroENAC, which is currently voluntarily paused to new enrollment as we assess some potential preclinical toxicology findings. We are still conducting studies internally to understand the toxicology findings, and we don't have clarity yet on the path forward. While we conduct those studies, we continue to make progress on our two new pulmonary programs, which are on track for CTA filings in the first half of 2022. In addition, we are working on a next generation ENAC candidate in parallel, should that prove to be helpful or necessary. We believe in ENAC as a target for cystic fibrosis and are confident that our pulmonary targeted trim platform has the potential to address multiple diseases in the lung without adequate treatment options. We have less clinical experience applying the trim platform to pulmonary tissue, so we don't yet have the predictability that we see when we apply the trim platform in the liver. But we are committed to getting there, and we are convinced that we can. Before turning it over to Javier to discuss the status of our mid- and later-stage cardiometabolic programs, I would like to discuss our growth plans. We now have 10 clinical-stage programs and intend to expand our pipeline by two to three new programs per year. To support this growing pipeline, We are in the planning stages of expanding our R&D footprint in San Diego and Madison. We will be leasing a new space in San Diego that is scheduled to be built over the coming year. In Wisconsin, we are in discussions with local and state government authorities and economic development agencies to explore potential tax and other incentives to build a new facility. Should those discussions be successful, we intend to build an Arrowhead campus in Wisconsin with two new facilities. These facilities will house expanded R&D and a GMP drug manufacturing plant. Our pipeline is advancing both in size and proximity to commercialization to the point where our buy versus build analysis indicates that the internal control of manufacturing now makes a lot of sense. This is true financially and, importantly, strategically. We value speed at every stage of development and in every function. Building out drug manufacturing capabilities for preclinical, clinical, and commercial drug product will give us more control over timing, process, and cost. We have not yet closed on the purchase of the land, so we have not yet started to incur significant costs. But Ken will talk later about our estimates for CapEx should we move forward with this plan expansion. With that overview, I'd now like to turn the call over to Dr. Javier San Martin. Javier?