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spk08: 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, Vince.
spk02: Thank you, Justin. Good afternoon, and thank you for joining us today to discuss Arrowhead's results for its fiscal fourth quarter and year-ended September 30th, 2023. With us today for management, our president and CEO, Dr. Chris Anzalone, who will provide an overview of the quarter. Dr. Javier San Martin, our chief medical officer, who will provide an update on our mid and later stage clinical pipeline. Dr. James Hamilton, our chief of discovery and translational medicine, who will provide an update on our earlier stage programs. And Ken Muskowski, our chief financial officer, who will give a review of the financials. In addition, Tracy Oliver, our Chief Commercial Officer, and Patrick O'Brien, our Chief Operating Officer and General Counsel, will 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 10-K filed today 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?
spk05: Thanks, Vince. Good afternoon, everyone, and thank you for joining us today. Arrowhead made significant progress toward reaching our 20 and 25 goal to grow our pipeline of RNI therapeutics to a total of 20 clinical stage or marketed products by the year 2025. With yesterday's announcement of a CTI filing for Arrow DM1, our newest skeletal muscle targeted program being evaluated as a treatment for type 1 myotonic dystrophy, we now have 15 clinical stage programs, 10 are wholly owned, and five are being developed with partners. We expect these 15 clinical programs to go to 16 over the next month with the addition of one more CTA this year. This will complete an extraordinarily productive year on the development front. In 2023, we will have nominated nine new potential clinical candidates using our trim platform across four different tissues, liver, pulmonary, CNS, and skeletal muscle. In addition, we will have filed four CTAs for new clinical candidates during the calendar year. We believe this type of productivity is simply unmatched in our field and is particularly impressive given the size and market capitalization of our company. Even so, we expect more in 2024. To understand these 15 clinical programs now, the 20 we will shortly have, the new targets we are planning to address, and the new cell types we will target over the years, is to understand the magnitude of patients we expect to treat and the value we can create over the long term. Of course, there is too much there to discuss in this setting, so today we will focus on some of the accomplishments, events, and considerations that may drive and unlock value in the near term. I see three primary areas. First, we are de-risking our pulmonary platform with knockdown and safety data in our clinical trials and toxicity data from our chronic tox studies. These enable us to move toward mid-stage studies addressing three main categories of chronic lung disease, inflammation, mucoobstruction, and interstitial lung disease, each of which have unmet treatment needs. Second, we are making good progress toward becoming a commercial company. We expect our initial commercial product to be plazaciran, formerly AeroApoC3, in the treatment of familial chylomicronemia syndrome, for which we will complete a Phase III study in Q2 2024, followed by our anticipated second indication for treating patients with severe hypertriglyceridemia, or SHTG, and a later potential indication for treating the broad population of patients with mixed dyslipidemia and atherosclerotic cardiovascular disease. And lastly, we have directional guidance towards strengthening our balance sheet in a shareholder-friendly way. Let's start with the pulmonary platform. We believe that Arrowhead is the first and only company to show clinically that RNAi can be harnessed to silence the gene expression in the human lung. This is important and marks the accomplishment of a key long-term goal we set for ourselves several years ago. We've always thought that once we have human safety and activity proof of concept with one candidate, it will unlock value in the entire platform and provide confidence that other programs could work similarly, much like our current expectations for new liver programs. So let's talk about important de-risking steps. First, we think we have confirmation that we have adequately addressed the chronic GLP toxicology issues of our first-generation aeroENAC candidates. In that program, we saw findings of local lung inflammation in chronic rat and monkey toxicology studies. We determined that this result was consistent with macrophage overload syndrome, and thus we needed to make next-generation candidates with improved potency and enhanced duration of effect so we could stretch out the dosing interval and reduce exposure. I think we are now over that initial hurdle. We've received chronic toxicology results in both rodent and primate species for AeroRage and AeroMMP7. James will talk about the specifics, but the takeaway is that the no AELs, or no observed adverse effect levels, suggest sufficient safety margins to move confidently into phase two studies. These were welcome results, and I believe represent substantial de-risking for the entire pulmonary platform. Once we select a dose and dose interval for each candidate, we plan to interact with the regulatory authorities in 2024 to discuss all results to date, including toxicology and our plans for further clinical development. Next, we want to ensure that clinical safety and tolerability are acceptable. We now have three pulmonary programs in First in Human Studies, and safety results have volunteers on active drug. Third, we need to ensure that our pulmonary drug candidates are doing what they are intended to do. We still need patient data in ARROW MMP7 and ARROW MUC5AC to understand this, but ARROW RAGE data has been very encouraging. Normal healthy volunteers showed 89% mean max knockdown and 95% max knockdown of circulating S-RAGE after two doses of 184 milligrams ARROW RAGE. At 92 milligrams, healthy volunteers showed a mean max knockdown of 80% and max knockdown of 90% after two doses. We are still collecting data from asthma patients, but so far they are mapping on top of those from normal healthy volunteers, as we expected. Together, I believe these data are important for the AeroRage program and, more broadly, serve to de-risk the entire pulmonary franchise. These data give us confidence that one, we have chronic tox coverage to move confidently into phase two studies for aero-rage and aero-MB7. Two, the drug candidates have been generally well-tolerated in humans. And three, we are seeing deep and durable knockdown in the aero-rage clinical program that tracks with what we saw in animal studies. The next step is to interrogate whether rage knockdown leads to a favorable clinical effect in patients. Upstream of hard clinical outcomes, or FEV1, There are biomarkers that can inform on whether arrow rage is engaging inflammatory pathways. We are approaching a time during the coming months where we may have data on arrow rage in asthma patients to make that assessment. We are currently dosing mild to moderate asthma patients and enrolling patients with high baseline phenol to potentially enrich for an anti-inflammatory signal. I believe that signal would represent a significant further de-risking event, so we are working quickly to get high phenol patients enrolled. The next area where I think we are creating substantial value is our progress toward becoming a commercial company. Our phase three study of Plozaciran in patients with familial colon micro anemia syndrome is approaching completion and we expect the last patient visit to be in the second quarter of 2024. That is a big step for development stage biotech company. We are carefully considering launch strategies for Plozaciran and look forward to speaking more about those soon. So where do we go after FCS? Data from phase two studies of both Plozaciran and Zodaciran, formerly AeroAng3, have been very compelling. And our presentations and webcasts around the American Heart Meeting earlier this month were well received by physicians, industry, and the investment community. For Plozaciran, we see a clear opportunity to treat patients with severe hypertriglyceridemia, or SHTG. We believe there are three to four million people in the U.S. with triglycerides over 500 milligrams per deciliter, with approximately one million of them with TGs greater than 880. There are very limited treatment options for these patients. Further, we anticipate an SHTG approval based upon studies demonstrating a lowering of triglycerides during one year of treatment with an adequate safety profile. In phase two studies, plasasterine reduced TGs to reduced TGs to lower than 500 in virtually all patients, and many had TGs fall to normal levels. We are presented with a compelling set of facts, a large pool of patients without adequate treatment options, a clear and relatively short regulatory pathway, and a drug candidate that has been consistent and very effective in phase one and phase two studies with good tolerability. We've had productive interactions with FDA, including end of phase two meetings, to discuss the design of a phase three clinical program in SHTG patients. We are finalizing planning and I expect we will launch the studies early in 2024. Beyond FCS and SHTG, we continue to see attractive opportunities to help a broader population of patients with plazaciran or with the zodaciran. Both candidates have shown a substantially, have shown two substantially reduced remnant cholesterol, increasingly appreciated risk factor of cardiovascular disease. I expect that we will conduct a cardiovascular outcome trial or CBOT that we will launch and that we will launch it in the middle of 2024. We have been planning to run a CBOT with plazaciran, but given the exciting data we presented at AHA in mixed dyslipidemia patients, we are now considering whether plazaciran or zodaciran would be a better candidate. We expect to decide to have as both appear to be potentially powerful agents in this large market. And we simply want to try to ensure we are moving the best candidate forward in this space. Also on the late stage side of our business, Decada is enrolling patients in the phase three study of Pazirceram. It is my understanding that they intend to open approximately 90 sites worldwide to help ensure the program moves quickly to an approvable endpoint that could be met after two years of treatment. Our wholly owned programs, Discovery Engine, and burgeoning commercial presence are all exciting components of our business that we believe will create substantial value going forward. They will also require significant capital over the coming years, and we are focused on building out our balance sheet to ensure that we can make these important investments. To that end, we are actively working on opportunities to bring in capital in shareholder-friendly ways, and we believe there are several good options in front of us. For instance, we are exploring specific product financing for the Plozaciran SHTG Phase III study and separately a possible CBOT, whether done with Plozaciran or Zodaciran. We believe we could source sufficient capital for those studies in return for limited royalties on those products. In addition, we have discussed business development in the past. We now have five different platforms that incorporate the design of high-quality RNAi molecules that target five different cell types, hepatocytes, skeletal muscle, pulmonary, adipose, and CNS. We believe this broad ability to deliver highly potent RNAi molecules to a variety of tissues is both scarce and valuable and could enable dozens of new drugs. We believe there's ample work, there's ample room to work with partners and also continue to build an extensive holyone pipeline. That is intended to continue to let our discovery engine move quickly while ensuring that one, we focus on a more limited set of holyone assets that provide our commercial team with the level of synergy and efficiency. Two, we continue to have access to necessary capital outside the capital markets. Three, we can continue to build more passive value as our partners invest in development and commercialization. And four, we can continue to serve patients. As we are able to provide better clarity related to the sources and magnitude of new capital, I believe a clear overhang in our stock may be removed. There's a lot of high-quality work going on at Arrowhead and substantial potential value to be unlocked as we solidify our balance sheet. Stay tuned for details when we're able to talk more about it. I want to highlight one last event from the quarter that is important. We announced that GSK reached an agreement with Janssen to transfer exclusive worldwide rights to further develop and commercialize J&J 3989 to GSK. If you recall, Janssen announced that they were discontinuing hepatitis B research and later announced that they were winding down most of their infectious disease and vaccine programs. J&J 3989 was one of the discontinued programs of this strategic decision. That created uncertainty about the future. Janssen was a good partner, and we are confident that GSK will continue the diligent work that Janssen started. This transaction also builds on Arrowhead's relationship with GSK, which includes the 2021 exclusive license of GSK 453-990. formerly AeroHSD, an investigational RNAi therapeutic currently in a Phase II study as a potential treatment for patients with alcohol-related and non-alcohol-related liver diseases. We look forward to continuing our productive relationship with GSK. With that overview, I'd now like to turn the call over to Dr. Javier San Martin. Javier.
spk20: Thank you, Chris, and good afternoon, everyone. I want to focus on the significant progress we've made on Prusaciran, formerly AeroApoC3, and Zodaciran . This includes presentations at the American Heart Association meeting with Phase II data on the Muir and Shasta II studies of Zodaciran and the Arches II study of Zodaciran, a KOL webinar on the significance of this data, and recent interactions we have had with the FDA on our plans for Phase III studies. Let's start with review of what Prozaciran is and then discuss the data presented at the AHA. Prozaciran is designed to reduce production of apolipoprotein C3 or apocitri, a component of triglycerol-rich lipoproteins or TRLs, and a key regulator of triglycerol metabolism. Apocitri increases plasma DG level by inhibiting breakdown of TRLs by lipoprotein lipase and uptake of TRL remand by hepatic receptors in the liver. Prosertinan has been developed as a treatment for patients with familiar chelomechronemia syndrome, severe hypertriglyceridemia, and mixed dyslipidemia. These are three distinct patient populations with very different phenotypes. Familiar chelomechronemia syndrome, or FCS, is a severe and ultra-rare genetic disease characterized by extremely high TG levels, typically over 1,000 milligrams per deciliter, leading to high risk of acute pancreatitis that usually requires hospitalization and can be fatal. We're currently conducting the Palisade Phase III study in 75 patients with FCS. The primary endpoint of the study is percent change from baseline and fasting TG. Palisade is scheduled to complete in Q2 of 2024. Severe hypertriglyceridemia, or SHTG, is characterized by marked elevation in TG levels, typically over 500 milligrams per deciliter, which can also lead to increased risk of acute pancreatitis, as well as an increased risk for cardiovascular disease. We conducted the Phase II SHASTA II study and reported data at AHA. We're also working on initiating Phase III studies, Shasta III and Shasta IV, in early 2024. I will discuss the AHA data and Phase III study design in a moment. Lastly, mixed dyslipidemia is the presence of high TGs and remnant cholesterol, often with low HDL cholesterol. Remnant cholesterol is believed to be a major contribution to the residual risk of atherosclerosis cardiovascular disease after LDL is well controlled. We conducted the Phase II newer study in patients with mixed dyslipidemia and reported those data at AHA. We're currently working on key features of the study design, including patient population selection for the potential Phase III study in patients with HCVD and mixed dyslipidemia. We presented data at AHA for these last two patients' population, SSTG, and mixed dyslipidemia. In the phase 2 SHAS-TAT-2 study of Prozaciran in 226 subjects with SF-TG who had baseline TGs greater than 500 milligrams per deciliter, two doses of 10, 25, or 50 milligrams of Prozaciran once every 12 weeks reduced TGs to near normal level, and more than 90% of patients achieved TG levels below 500 milligrams per deciliter, which is the risk threshold for acute pancreatitis. Losacirana achieved mean maximum reduction of up to 90% in APOC-3 and 87% in TGs. At 24 weeks, 12 weeks after the second dose, seroneposid-3 remained 79% below baseline, and TGs were 74% below baseline, with reduction in Grandman cholesterol of 63%, while HDL cholesterol increased 58% above baseline. In the phase two near study of Prosaciran in 353 subjects with mixed dyslipidemia who had fasting teaches between 150 and 499 milligrams per deciliter and either LDL cholesterol greater than 70 milligrams per deciliter or non-HDL cholesterol greater than 100 milligrams per deciliter. Subjects in this study received two doses of 10, 25, or 50 milligrams of Prosaciran at baseline and at week 12 for two doses of 50 mg at baseline and week 24. Procecinan treating subjects demonstrate a mean maximum reduction in APO-C3 of up to 89% and robust reductions in heterogenic lipoproteins. At 24 weeks, Procecinan reduced stitches by 64%, Redmond cholesterol by 54%, APO-B by 19%, and non-HDL cholesterol by 27%, while increasing HDL cholesterol by 51%. These were very encouraging results, and they received a lot of attention at the AHA. After the presentations, we hosted a webcast featuring three experts in the treatment and management of lipid and lipoprotein disorders. Daniel Godet, professor of medicine at the University of Montreal, who discussed Prozaciran in the context of the current treatment landscape for severe hypertriglyceridemia. Jorge Norbescar, professor and chief physician, Copenhagen University Hospital, University of Copenhagen, Denmark, who discussed the emerging role of Rennmann cholesterol in cardiovascular disease. And Steven Nissen, chief academic officer for the Heart and Vascular Institute at the Cleveland Clinic, who discussed why the decrease in heterogenic lab proteins observed with Prosacinan has the potential to prevent cardiovascular outcomes. A replay of that webcast is available on our website if you missed it. My takeaway was that all three experts agree that Prosacinan has a unique profile and great potential in SCS, SHTG, and in patients with ASCVD and mixed dyslipidemia. The support of these notable experts gives us additional confidence as we embark on Phase III studies to further evaluate Procelsior. So what will the SHDG Phase III studies look like? We had an end of Phase II meeting with the FDA, and our plan is to do two similar studies, Shasta III and Shasta IV, that together will be composed of approximately 700 patients. all with TGs greater than 500 milligrams per deciliter. The primary endpoint is lowering TGs after one year. We will include a subset of patients at higher risk of acute pancreatitis. We will provide more detail on that as we get the studies initiated in early 2024. We will also have a third study that involves patients with moderately elevated TGs to add to our safety database. We expect these studies to all be completed around the same time. All in all, our interactions with FDA have been productive and helpful. We believe that we have incorporated their feedback and look forward to continue the dialogue with the agency as we get closer to an NDA filing following completion of the PALACE study in patients with FCS and as we move forward with additional Phase III studies in SSTG and mixed dyslipidemia. We also presented data at AHA on Zodaciran, which received a lot of attention. Zodaciran is designed to reduce production of angiopoietin-like protein 3, or angPTL3, which is a hepatocyte-expressed regulator of lipid and lipoprotein metabolism with multiple potential modes of action, including inhibition of lipoprotein lipase and endothelial lipase. In the Phase II ARCHES II study of esobacillin in 204 subjects with Nix dyslipidemia who had baseline TGs between 150 and 499 milligrams per deciliter and either LDL cholesterol greater than 70 milligrams per deciliter or non-HDL cholesterol greater than 100 milligrams per deciliter, two doses of 50 milligrams, 100 milligrams or 200 milligrams of esobacillin once every 12 weeks reduced expression of HPTL3 and decreased heterogenic lipoproteins. Treatment with zolacidin resulted in substantial reductions of HPTL-3 up to 74%, PCHES up to 63%, LDL cholesterol up to 20%, Renman cholesterol up to 82%, and APOB up to 22% all at week 24. Zolacidin was also associated with a relative reduction in liver fat fraction at week 24, with no adverse events related to liver function tests, changes reported to date. Plusazidine and zudazidine continue to show favorable safety profiles. Treatment emergence adverse events reported to date reflect the comorbidities and underlying conditions of this study population. As I mentioned before, we're currently considering multiple phase three study designs and making decisions on patient population selection for mixed dyslipidemia in patients with atherosclerotic cardiovascular disease. We'll talk more about that in 2024 after we have further interactions with FDA about our proposed plan. I will now turn the call over to Dr. James Hamilton. James.
spk07: Thank you, Javier. I believe the productivity of our discovery organization is unrivaled. This is partly due to the efficiency and scalability of sRNA therapeutics and specifically of our proprietary TRMM platform, but more importantly, a product of the culture of speed and innovation at Arrowhead. We continue to find ways to outperform others in the RNA therapeutic space with a highly productive and lean organization. In 2023 alone, we completed discovery and optimization work across five different delivery platforms and nominated nine clinical candidates. Each then may go on to the IMD enabling phase, including GOP toxicology studies, clinical supply manufacturing, as well as preparation and submission of regulatory filings. We are also working on a discovery pipeline of similar size for 2024. This high level of productivity is how we intend to reach our 20 and 25 development goal. Our discovery stage pipeline is, for the most part, kept confidential until we are approaching a CTA four times until we file a CTA. So you will likely start hearing more about the newly nominated clinical candidates over the coming quarters. For example, yesterday we announced that we filed a CTA for ARO-DM1, our clinical candidate for the treatment of patients with type 1 myotonic dystrophy, or DM1, and our second clinical program using the TRIM platform for delivery to skeletal muscle. The phase one two-way dose escalating study will evaluate the safety, tolerability, and PKPD profile of single and multiple ascending doses of ARO-DM1 compared to placebo in up to 48 patients with DM1. ARO-DM1 is designed to reduce expression of the dystrophia myotonic of protein kinase, or DMPK gene. DM1 is the most common adult onset muscular dystrophy, and there is currently no approved disease modifying therapy. Treatments have focused on symptomatic management, including physical therapy, exercise, ankle-foot orthoses, wheelchairs, and other assistive devices. ARRA DM1 represents a novel approach to treat DM1 by silencing aberrantly transcribed GMPK mRNA, which could lead to improvements in multiple symptoms, including muscle strength and function. We have several exciting early-stage clinical programs that target genes expressed in the liver, lung, muscle, and CNS, each of which is moving towards proof-of-concept data. However, I will focus on the three pulmonary programs. Specifically, I'd like to review safety and tolerability data to date, recent chronic toxicology results that I think help de-risk the pulmonary platform broadly, as well as some new PD data that further support our plans to rapidly move all programs forward. To review, our three clinical stage pulmonary programs are the following. Aero RAGE is designed to reduce expression of the receptor for advanced glycation end products or RAGE as a potential treatment for inflammatory pulmonary diseases. Aero MUC5AC is designed to reduce production of Mucin 5AC or MUC5AC as a potential treatment for mucobstructive pulmonary diseases. And Aero MMP7 is designed to reduce expression of matrix metalloproteinase 7, or MMP7, as a potential treatment for idiopathic pulmonary fibrosis, or IPF. All three of these programs are in phase 1, 2A clinical trials evaluating single and multiple doses in normal healthy volunteers and in patients. Across the three programs, 145 total subjects, both normal healthy volunteers and patients, have received active drug via inhalation, with another 31 receiving arrow rage via the subcutaneous route. There have been no serious adverse events deemed to be related to drug. There have been no patterns of drug-related adverse events, pulmonary adverse events such as cough or shortness of breath or adverse changes in lab or spirometry values. There has also been no evidence of local lung inflammation based on valve cell count evaluation and all chest X-rays have been read as normal. These safety and tolerability results have largely been consistent across the three programs and are highly encouraging for the pulmonary platform. Next, I'd like to cover the chronic toxicology results for aero RAGE and aero MMP7, which we recently received. These results are also highly encouraging and suggest that we have sufficient safety margins to proceed confidently to phase two. Specifically for arrow rage, the no observed adverse effect level, or NOAL, in the six-month rat study was the mid-dose, and in the nine-month monkey study, it was the highest dose studied. For arrow MMP7, the rat NOAL was the highest dose, and the monkey NOAL was the mid-dose. Keep in mind that dose levels selected for GLP toxicology studies are high multiples of the desired clinical dose, so some findings in a toxicology study are expected. The results for both aero RAGE and aero MMP7 suggest that the learnings and improvements we have made since our first generation pulmonary candidate, aero ENAC, have improved the therapeutic index for our inhaled sRNA programs. Pending feedback from regulatory authorities, we are confident that we will have the required safety margins to begin phase two studies. This is an important step for the pulmonary platform at an important time as we look to design and initiate Phase II studies in 2024. Now, moving on to the new pharmacodynamic data. AeroRage continues to yield promising dose-dependent target engagement results. We previously reported impressive reductions in soluble Rage protein, or S-Rage, in serum and in bronchoalveolar lavage fluid, or BALF, in healthy volunteers. Previously reported at our June analyst R&D day, after two doses of 92 milligrams given on days 1 and 29, serum ester age mean maximum reduction was 80% with a maximal reduction of 90%. After a single dose of 184 milligrams, we observed a mean reduction of 90% and maximal reduction of 95% in valve ester age with mean maximum serum S-Rage reduction of 76% and maximal reduction of 91%. We have since received additional S-Rage data after two doses of 184 milligrams in healthy volunteers. After a second dose of 184 milligrams, serum S-Rage mean maximum reduction was 89% with a maximal knockdown of 96%. Additionally, reduction of serum S-rage was similar in healthy volunteers and in patients with asthma at the 44 milligram dose level. So what are the next data points that we are watching? We're currently enrolling the top dose cohort in the mild to moderate asthma patients and have initiated a cohort of asthma patients with high baseline levels of fractional exhaled nitric oxide or phenol. which is a biomarker for the degree of IL-13-driven type 2 inflammation in the lung. These are both important to watch. If we continue to see consistency of PD effect in asthma patients, that would be encouraging. Also, it would be highly encouraging if raged lung knockdown leads to an anti-inflammatory effect via the pheno biomarker in either the mild to moderate asthma patient cohorts or more likely in the high pheno cohort. The former should have data available during the coming months, and the latter will have the data around Q3 of 2024. I will now turn the call over to Ken Miszkowski. Ken?
spk06: Thank you, James, and good afternoon, everyone. As we reported today, our net loss for fiscal 2023 was $205.3 million, or $1.92 per share, based on 106.8 million fully diluted weighted average shares outstanding. This compares with a net loss of $176.1 million or $1.67 per share based on $105.4 million fully diluted weighted average shares outstanding for 2022. Revenue for fiscal 2023 was $240.7 million compared to $243.2 million for 2022. Revenue in the current period primarily relates to our collaboration agreements with Takeda, GSK, and Amgen. Revenue is recognized as we complete our performance obligations or key development milestones are reached. For Takeda, revenue is recognized commensurate with our performance obligation, which includes managing the ongoing AAT Phase II clinical trials. Remains $866,000 of revenue to be recognized associated with the Takeda collaboration, which will be recognized in the next fiscal quarter. Revenue in the prior period primarily related to the recognition of payments received from our license and collaboration agreements with GSK and a portion of the payments received from our license and collaboration agreements with Takeda and Horizon. Total operating expenses for fiscal 2023 were $445.7 million compared to $421.7 million.
spk08: We are currently experiencing technical difficulties and we are trying to get back online. Please bear with us.
spk06: Sorry folks, we lost our internet connection. We're calling in as a cell phone. And I'll continue where I think we left off. Total operating expenses for fiscal 2023 were $445.7 million compared to $421.7 million for 2022. This increase is driven primarily by increased candidate-specific and discovery R&D costs as the company's pipeline of clinical candidates has both increased and advanced into later stages of development. Net cash used by operating activities during fiscal 2023 was 153.9 million compared with net cash used by operating activities of 136.1 million during 2022. The increase in cash used by operating activities is primarily driven by higher research and development expenses. We expect our operating cash burn to be 110 to 130 million per quarter in fiscal 2024 and we expect full-year capital expenditures of approximately $150 million as we near completion of our GMP manufacturing facility. Turning to our balance sheet, our cash and investments totaled $403.6 million at September 30, 2023, compared to $482.3 million at September 30, 2022. The decrease in our cash and investments was primarily due to cash used for operating activities and capital expenditures, partially offset by cash inflows from financing activities. Our common share is outstanding at September 30, 2023, for $107.3 million. With that brief overview, I will now turn the call back to Chris.
spk09: Thanks, Ken.
spk05: Arrowhead had another productive quarter, and we see wide open space to accelerate our growth over the coming year. We expect 2024 to be a data and event-rich year with many expected opportunities to create value, including readout of the Plozaciran FCS phase 3, filing our first NDA, launching a phase 3 for SHTG with Plozaciran, launching a phase 3 CVOT with either Plozaciran or Zodaciran, readout in various patient populations with Aero C3, initial CNS data in patients with Aero SOD1, AeroRage Pheno and Knockdown Data in Asthma Patients, AeroMMP7 Knockdown Data in IPF Patients, AeroMUCC5AC Knockdown Data in Asthma and COPD Patients, and Initiation of First in Human Studies with our First Adipose Targeting Candidate. Thank you for joining us today, and I'd now like to open the call to your questions. Operator?
spk08: As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And we ask that you limit yourself to one question and one moment for our first question.
spk09: And our first question comes from Edward Tenthoff from Piper Sandler.
spk08: Your line is now open.
spk15: Great, thank you very much, and thanks for taking the question. I'm excited about all the progress on the cardiovascular side. I wanted to ask about the DM1 filing today, because now with this, I think you guys also recently maybe filed on Dux4, if I'm remembering correctly. So this is really a franchise you're starting to build in muscle. Is this going to be a core area, or could this be one of the areas for potential partnerships that you were highlighting. Thanks.
spk05: Hey, Ted. Thanks very much. And again, we're really sorry for the technical problems. No worries. I think you're right. We view skeletal muscle as potentially another vertical, another franchise. We think both DM1 and DUX4 are good targets. We think these are two large numbers of patients who desperately need treatment options, and so we're excited about these. We are looking at some additional treatments targets as well, and so we'll see if this can grow to be something as large as we foresee pulmonary being, for instance. At this point, it's a little bit too early to tell, but I would agree that right now it appears to be a pretty interesting burgeoning franchise for us.
spk15: Awesome. Great. Thank you. Looking forward to hearing more about it.
spk09: Thank you, Ted. And thank you.
spk08: And one moment for our next question. And our next question comes from Ellie Merle from UBS. Your line is now open.
spk01: Thank you, guys. Thanks so much for taking that question and all the color on the timeline for the pulmonary program. Maybe just in terms of understanding the biology of rage, particularly in the high seno cohorts, I guess what are you looking to see there and what would you view as clinically meaningful things?
spk07: James, do you want to start this? Sure. We would expect to see the reductions in phenol primarily based on our animal data. The work we did in the Alternaria model showed steep reductions in IL-13. We can't measure phenol in the rats, but a large reduction in IL-13 should translate into a reduction in pheno. And in terms of what would be clinically meaningful based on what was seen with tezopelimab or bupixent, I think something in the 30% or so range would put us in the range of what those other molecules have been able to show.
spk09: Great, thanks. Thank you. And thank you. And one moment for our next question. And our next question comes from Morrie Raycroft from Jefferies.
spk08: Your line is now open.
spk17: Hi, thanks for taking my question. I was going to ask one on AeroRage2. You mentioned that in patients The data is mapping with what you observed in healthy volunteer data. Can you elaborate on whether you're seeing this for your 92 and 184-meg asthma patients? And could you have the FEV1 data from these non-phenol patients, potentially even by year end or first quarter of next year? I guess maybe if you could provide more granularity on the timeline there. And also, you talked a little bit about the sub-Q arrow range data. Can you talk about what you're seeing there and remind what the purpose is of assessing that route of administration?
spk07: I'll take those in reverse order. SubQ, we're still about halfway through that study. The study's fully enrolled, but with healthy volunteers over just collecting the data from some of the earlier cohorts. So we're not ready to share the S-rage data from those studies yet. The idea there is that based on the animal work we've done, we were able to see significant levels of knockdown in both rodents and in monkeys with sub-Q administration. So we wanted to We view that as a potential additional option, an optional route of administration that could be different from an inhaled route of administration. Then the next question, I think, was on FEV1. We've seen those data as they come in. It's primarily in there as a safety endpoint, and the cohort sizes are very small. We've not analyzed those data in the patient cohort that we have filled at this time, and so I think it's too early for us to say anything about FEV1 changes. Suffice it to say that the cohort sizes are single digits and FEV1 can be a noisy metric. And then the first question was? Oh, that's right. We only have the S antigen data or the S range reduction data from the 44 milligram dose level in the patients. So we've not seen the S range reduction data from 92 milligrams or 184 milligrams.
spk18: Got it.
spk17: Okay. And for FEV1 at baseline, is that something you can comment on for the asthma cohorts, the higher dose cohorts?
spk07: Yeah, again, I think we don't have all of the aggregated data as of yet, but no.
spk20: The cohorts for the RAGE study were all mild asthma patients, so it's expected to have relatively normal baseline efforts as well.
spk09: Got it. Got it.
spk20: So more mild patients in the asthma patients for those two higher-dose cohorts. Okay. Thanks for taking my question. Thanks, Brian. And thank you.
spk09: And one moment for our next question.
spk08: And our next question comes from Manny Farohar from Lyrics Partners. Your line is now open.
spk03: Thanks for taking the question. I guess I'm going to zoom out on an ultimately more macro and philosophical question. You talked about monetizing some type of synthetic royalty or royalty cell monetization. You talked about a couple different things. approaches to finance the ongoing CBOT, that in my mind raises two questions. One, that is by definition, anything that's royalties, you know, is a fairly high duration financing instrument and that it's essentially a form of synthetic debt. How do you think about timing a royalty or I guess convert any type of debt, any type of rate dependent transaction Given how volatile the funding rates of anyone who would be buying that royalty from you would be, you do want to wait until rates come down to see if you could potentially get a tighter spread, et cetera. Just how do you think of that from a purely financial CFO macro perspective? And then secondarily, you know what, I'm going to stop. I'll ask my follow-up afterwards.
spk05: Sure. So the short answer is no, you know, we would not – um, you know, wait for macro environments to change that, you know, who knows what, you know, who knows where those are going to go. Um, you know, there are, there are, there are several funders, multiple funders that do this kind of work. Um, and we have been, we have, you know, we've been chatting with some of them, um, for a bit now and, and, and, and we believe that there are, there could be attractive opportunities there, um, that are not dependent upon, you know, fundamental changes in the macro environment. So we feel comfortable that there is capital there, you know, at a reasonable rate for us, you know, to finance these in this kind of manner. You know, will we ultimately pull that lever? We have, you know, we haven't made that decision, but we just wanted to make clear that that is a lever and potentially an attractive lever that we could pull as part of an overall financing strategy.
spk03: Great. And I guess my follow-up is, If you're going to be selling part of the economics of an asset that you're going into a CDOT, how do you think about that versus partnering the asset entirely rather than the CVOT yourself? Presumably a large pharma partner would ascribe a lower operational discount to their own carrying out of a CDOT versus you guys doing your first CDOT. implying a more attractive NPV if they were to acquire the asset from you in a partnership, whether 100% purchase, royalty, 50-50, under any terms, by definition, the economics of a partnership would be better than raising capital during yourself. So is there a reason why you see retaining it and then raising at an implied higher cost of capital as a better strategy rather than selling it at an implied lower or partnering at an implied lower cost of capital and eliminating the operating risk of having to do a CBO to yourselves?
spk05: Yeah, look, those are all things that we consider as we look at the array of funding opportunities ahead of us. Paying some amount of royalties on these is relatively cheap for us because we're not stacking royalties. We don't owe royalties on any of these assets. And so And presumably also those royalties would be capped. Presumably they would not go indefinitely. But you're right. As we look at all these opportunities, we need to take all those things into consideration. Look, we see ourselves as a commercial company, and we think we can create a lot of value as a commercial company. And so assuming that the relative cost of capital while holding onto these assets is reasonable, then that's something that we would do.
spk09: All right. Thanks, guys. That's really helpful. Yep. You're welcome. And thank you. And one moment for our next question. And our next question comes from David Leibowitz from Citi.
spk08: Your line is now open.
spk04: Thank you very much for taking my question. Just piggybacking on the last question. As far as any licensing agreements you're looking at, are you planning to wait until after the pivotal data? And also, what activity level are you intending to really take within the partnership? Is this something where you're going to be very active licensing to kind of one of these royalty companies? Or would this be something more specific where you're basically giving control of the asset to a larger pharmaceutical player?
spk05: Yeah, the answer to that just depends upon the asset, of course. You know, we have done and will continue to do asset licenses like we do with HSD or HBV or AAT. Well, I guess AAT is a little bit different because we definitely need to probably share there. But, or LPLA, you know, we will do those going forward depending upon the asset. You know, look, here's our goal. You know, we have a very large pipeline, and it's only going to get larger, and so we've got plenty of room to license out some individual assets. What we want to end up with is a series of verticals where we can concentrate commercial build-out, and we can give our commercial team, you know, several drugs to hold in the bag to sell into various channels. I think we can do that, you know, given our franchise is pulmonary, muscle, cardiometabolic, CNS, et cetera, adipose, et cetera. So I think we can do that. And as we look at how to cluster those, we will find that there are some outliers, if you will, some that may not fit well into a commercial strategy. And those would be the easy ones. Those would be the easy ones to license out. We also have the opportunity to do platform deals. We've talked about this in the past. I like that a lot. We now have five platforms, five different cell types that we can address. I like the idea of working with partners who can bring in targets to us and we can help to create drugs for those partners. That, for me, is found value as long as those targets are not what we're working on right now. And so, you know, maybe it's an unsatisfying answer because we'll be doing a number of different things, but that's the way we see the waterfront. And again, you know, if we were one or two asset companies, then the answer would be much simpler. But we are, you know, we are a 20-plus, you know, asset company. And so we have the ability to, you know, to structure a number of different partnerships and go-to-market strategies for ourselves.
spk09: Well, thanks for taking my question. You're welcome. Thank you. And one moment for our next question. And our next question comes from Luca Icy from RBC Capital.
spk08: Your line is now open.
spk16: Oh, great. Thanks so much for taking my question. Congrats on the progress. I have a quick one, maybe, Javier, if I may. I was under the impression that you were planning a cardiovascular outcome trial with APOC3. While it sounds to me that you're not planning cardiovascular outcome trial either with APOC3 or ANG3, assuming that that is correct, what drove the change in strategy? Was this informed by conversations with the FDA? And is this related in any sort, form, or shape with the numerical worsening in glycemic control that we've seen for APOC3? Any call there, much appreciated. Thanks so much.
spk20: Well, thank you for that question, Luca, really important. And I think this highlight how dynamic is drug development today, how fast science change and advance. If we go back, I would say, six to nine months, when we already were thinking and working on a simple trial design for Tostacita-Nojero A4C3, the focus was triglycerides, and the field was focused on triglycerides as a key component of the receiver risk. In the last six months, I think that focus changed. And I'm saying in the last six months because I don't know if you're calling to a KOL webinar at the American Heart Association, but Dr. Noderbach, showed a slide where you see the number of publications in renmin cholesterol as a component of residual risk in the last 10 years, which was 10 or 20 papers a year versus 1,000 in the last one year. That means the change in this field is happening as we speak, and the understanding that it's not just DG, but it's renmin cholesterol and it's the totality of the heterogenic lipoprotein the new development and frankly six months ago nine months ago it wasn't a key component of our decision-making and it is now and it's been in the last three months so now when you look at the two molecules and you focus on the concept of totality of heterogenic lipoproteins not TG or not TG only Because remember, for TG, A for C has better efficacy than ROH3. But when you look at the totality of heterogenic lipoproteins, ROH3 reduce LDL cholesterol by 20 plus percent, reduce Raman cholesterol by 80 percent. So it is substantially different. The population that we should address may not be exactly the same, and that's something that we're thinking and talking to experts right now. So I think we're changing following the science. We did have conversation with some experts. We did not have any conversation about this with the FDA yet. And within the next month or so, we're going get close to make a decision and start to define our next step from the regulatory perspective and from the clinical trial design perspective.
spk05: And I don't think this was – I don't think you were getting towards this, but let me just say it. You know, our increase in interest in ANG3 doesn't reflect a lack of confidence in APOC3. we were moving forward on that, as you point out, for a CBOT. But as the science has been moving, as Javier said, over the last six months, we've had this growing wait-a-minute moment where we should be looking also at ANS3 just to ensure that we are pushing the best candidate that we can into a specific type of CBOT. We are still moving as quickly as we can. Obviously, with FCS, we'll be finished with that phase three, I think, in the second quarter. We'll be starting the SHCG phase three early 2024. Now we've got a little bit of time to figure out where we're going to place our bet with the CBOT.
spk18: Got it. Thanks so much, guys.
spk09: You're welcome. And thank you. And one moment for our next question. And our next question comes from Brendan Smith from TD Cowan.
spk08: Your line is now open.
spk11: Great. Hi, guys. Thanks for taking the questions. Congrats on the progress. Just a couple quick ones if I could. I also want to have a follow-up just on the timing to pulmonary data. Is it fair to say we'll see the high-dose RAGE data in asthma patients by Q2 of next year with the high FENO data in Q3? And then really just any call you can give us on MUC5AC, MMP7, Maybe when we might see some of that data next year would be great. And then quickly, I just wanted to see if there's any updates on the Arrow C3 program and if there's any plans to put out any data from that next year either. Thanks.
spk05: Sure. James?
spk07: Yeah, the intention would be to release the SRAGE data from the asthma cohorts when it becomes available to us. So probably, you know, the middle of the first half of next year, I think, for the asthma, the high-dose asthma, esophage data. And then in terms of phenol, in the high phenol cohorts, we're looking at Q3 for phenol data in those patients. And then MUC5AC has been a little more challenging to enroll some protocol requirements in there and the requirement of those patients being severe asthmatics. But likely towards the middle of the year for MOC5AC data, we still need to enroll the highest cohort of those patients. In terms of C3, we are in the process of enrolling the patient cohorts, the IgA nephropathy patients, as well as the C3G patients. So probably the second half of 2024 for pertinent area data.
spk09: All right. Great. Thanks very much. Appreciate it. Thank you. And one moment for our next question. And our next question comes from Mayank Mamtani from B. Riley Securities.
spk08: Your line is now open.
spk19: Good afternoon. Thanks for taking our question. So maybe, James, if you could dive a bit deeper on the safety margin difference that you've seen between MUC5 versus RAID in the recent preclinical data that we received, and if you're able to comment on how the NOEL doses for MUC5 correlate with the top dose that's being tested in the clinic, and maybe a high-level question on, like, what for MUC5 would be, you know, human proof of concept like we, like investors think about for adult age in terms of, you know, high asthma patients. Like you just commented, it's severe asthmatic patients, but what sort of biological signal would be relevant here, given obviously this is more downstream physiology to IL-4 and IL-13?
spk07: Yeah, I think on the last question, it's a bit tough to pin down what's clinically relevant in terms of mock 5AC knockdowns, since there's not a great correlate out there from other drugs. So I can't give you an exact number on that. In terms of the safety margins, comparing MMP7 or RAGE with ENAC, I guess it depends on the dose level. We used a low, mid, and high dose level for all of those chronic tox studies in the rats. If you compare the cumulative dose given over a six-month rat study at the high-dose level for RAGE, we had a seven-fold difference between the high-dose level used in ENAC and in RAGE and a four- to five-fold difference for MMP7 in the RAD. So it's a significant difference between the total cumulative doses that were administered with those two different molecules.
spk19: Got it. Thank you. And then just on the muscle targeting programs, that's for DM1. Could you just remind us the targeting receptor ligand approach here? And as obviously you guys know, you know, it's an active field. There are alternative antibody approaches. Maybe how does sort of your preclinical data work? inform, you know, what you've seen and maybe related to that, is the plan to secure non-dilutive capital for that no longer a near-term event, Chris, or you're just going to be opportunistic recognizing that there might be some more clinical data coming in from these targets from any of your peers? I'm sorry, I misunderstood. What kind of capital? Say that again. Yeah, I think you had plans for non-valuative capital at some point, which delayed the Dux 4 program. So I'm just curious if you're no longer going to do anything strategically there for the muscle in the near term.
spk05: Right. Yeah, yeah. That ran its course for now. We are happy to run the to run the DUCS4 as well as DM1 clinical programs, which did not mean that we will never partner them, but we were exploring, as you know, we were exploring potentially partnering DUCS4, and it just made sense to us to stop those discussions, and we're moving ourselves for right now. James, do you want to?
spk07: Sure, and then on the comparison with the other muscle-targeting platforms that are out there, for DM1, we've looked at knockdown in the CINO and have achieved a comparative similar knockdown with similar duration of effect with what's been published for, for example, the transfer-targeted platforms. We use the peptide targeting the alpha-beta-6 So, it's a different way of getting the sRNA into the cell. I think we, in terms of total drug dosage, our dosages should be much lower compared to the transferring conjugates, which of course conjugate sRNA to a monoclonal antibody. And then I would also anticipate that we would not expect to see some of the transfer and related safety issues that have been out there. Of course, the time will tell and the data will tell us, but it's something we would not anticipate.
spk09: Okay. Thanks for taking our questions. You're welcome. Thank you. And one moment for our next question. And our next question comes from Patrick Trucio from H.C.
spk08: Wainwright and Company. Your line is now open.
spk14: Thanks. Good evening. Just regarding the 20 and 25 targeting goals, can you give us a sense of from which platforms the 20 drug candidates are expected to emerge from, understanding several have been announced this year, and if along with CNS pulmonary, liver, adipose, and muscle, if additional tissues may be targeted with TRIM?
spk05: I don't have any guidance to tell you on additional cell types. other than the fact that we will be in new cell types. You know, we've said publicly that we think we can get into a new cell type every 18 to 24 months. I think that continues. Look, I expect, you know, by the year 2025, we will have new or additional candidates in every one of those verticals.
spk14: Got it. And then just a few follow-ups on the pulmonary compounds. Just first, regarding initial chronic tox results for the arrow RAGE and arrow MP7, I'm wondering if you can tell us if or when further chronic tox data is expected and the level of confidence that data should continue to support advancement of those programs, and when you might have similar data for arrow MUC5AC in 2024. And just to follow up on arrow RAGE, if you can discuss the targeting mechanism of the sub-Q administration. and advantages that would be expected for this route relative to the inhaled route?
spk07: Yeah, sure. So, in terms of the chronic rat or the chronic tox data for the pulmonary programs, that's it. I mean, that's the final, you know, that's from the final report. So, there's no more expectations. We won't be getting any more data around chronic tox for MMP7 or RAGE. For MUF5AC, We're still planning the chronic tox study. We wanted to get some biomarker data from the clinical study to better inform on on the dose frequency for the chronic tox studies since frequency of administration seems to be really important to avoid entering into dose levels where we see toxicity. We really wanted to nail down dose frequency, so we need to get a duration of effect from the clinical studies before we finalize the chronic tox study for MUC5-IC. And regarding the sub-Q, you know,
spk05: Our thinking there was twofold. One, there could be other targets and other indications where sub-Q administration is just preferred to inhale. Second, that could potentially also broaden or widen out our therapeutic index.
spk09: Great. Thank you very much. You're welcome. And thank you. And one moment for our next question. And our next question comes from Prakhar Agrawal from Cantor Fitzgerald.
spk08: Your line is now open.
spk12: Hi, thanks for taking my questions and congrats on the progress. So on your Arrow XDH program that was partnered with Horizon, it seems that Amgen has decided to terminate this agreement. Was there any data generated by XDH program or was it just part of the recent strategic overhaul by Amgen after Horizon was closed? And what are your plans for this asset now? develop internally, or will you be looking for a partner again? Thank you. So it's early to say on that.
spk05: We haven't seen data. I don't know that we will, but at least so far we haven't seen any of the clinical data, and we've not been told why that was being discontinued, whether it was strategic or something else. We have some theories. James, do you want to talk about the myelin program, for instance?
spk07: Sure, yeah, I think another company had an S-ironade targeting the same gene target, XTH. It was also discontinued due to lack of decline in uric acid in the blood. So even if you knock down all of the XTH in the liver, there are still tripatic sources.
spk09: So liver knockdown might not have been enough. Thank you. Thank you. And one moment for our next question. And our next question comes from Mike Alts from Morgan Stanley.
spk08: Your line is now open.
spk13: Hey, guys. Thanks for taking the question. Maybe just a quick one on arrow rage, just in terms of timing of a potential phase two study there. Now that the clinical, the chronic tox studies are done for arrow rage, do you have enough data to now start to engage with the FDA, or is the plan more to wait for some of the, you know, other cohort data like the asthma patients or high-feno before you start to do that? Thanks.
spk20: We're thinking about starting phase two 2024 for sure, and there's already work going into that that we decide. patient populations, selection of CROs. So we are already planning. As the data is coming in, it will help us to decide the dose and the dose frequency. But we are already planning on the next stage, development for the ARO range.
spk09: Okay, thank you. You're welcome. And thank you. And one moment for our next question. And our next question comes from William Pickering from Bernstein.
spk08: Your line is now open.
spk10: Hi. Thanks so much for squeezing me in. I had a few follow-ups on the DM1 announcement. How is the drug designed to get your siRNA inside the nucleus where the mRNA is accumulating? And maybe can you share any more color on what endpoints you'll be measuring that could suggest early signs of efficacy, for example, splicing assessment or any functional endpoints? Thank you.
spk07: Sure, yeah. So we will look at some of the same endpoints that other companies have looked at, and we'll look at total DNPK knockdown changes in spliceopathy, and we'll also look at the video and opening time, as well as some of the other functional endpoints. And so your other question on knocking down siRNA in the nucleus spliceopathy, We've done some work in animals. We haven't published this yet or shared it publicly via a poster or presentation, but we've shown at doses similar to what we had planned on administering in the clinic that we are able to get a level of knockdown of nuclear RNA, and that translates into improvements in spliceopathy. So that was the impetus for us moving this program into the clinic, that we could get, even with some modest levels of nuclear RNA knockdown, we could get improvements in spliceopathy.
spk09: Great. Thanks so much, and congrats on the progress.
spk08: Thank you. And I would now like to turn the call back over to Chris and Alonzi for closing remarks.
spk05: Thanks very much, everyone, for joining us today, and I wish you all a happy holiday season.
spk08: This concludes today's conference call. Thank you for participating. You may now disconnect.
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