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, it will be an opportunity to ask questions. I will now hand the conference over to Vince Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, Vince.

Thank you. Good afternoon. Thank you for joining us today to discuss Arrowhead's results for its fiscal 2024, year-ended September 30th, 2024. With us today for management are President and CEO, Dr. Chris Anzalone, who will provide an overview over the quarter, Dr. Bruce Gibbon, Interim Chief Medical Scientist, who will provide an update on our cardiometabolic pipeline, Andy Davis, Senior Vice President and Head of Global Cardiometabolic Franchise, who will provide an update on commercialization activities, Dr. James Hamilton, Chief of Discovery and Translational Medicine, who will discuss our earlier stage development programs, and Ken Muskowski, Chief Financial Officer, who will give a review of the financials. We will then open the call to questions. Before we begin, I would like to remind you that comments made during today's call contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are forward-looking statements and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. For further details concerning these risks and uncertainties, please refer to our SEC filings, including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q. I'd now like to turn the call over to Chris Anzalone, President and CEO of the company. Chris? Thanks, Vince.

Good afternoon, everyone, and thank you for joining us today. Over the years, we've built platforms capable of addressing liver, lung, adipose, CNS, skeletal muscle, cardiomyocyte, and soon other cell types to bring RNAi therapeutics where a multitude of diseases are. Any one of these would represent an important advance in human health, but together we believe they have revolutionary potential. I don't think it's hyperbole to say that we've created a machine that spits out high-quality drug candidates if you just feed it money and gene targets. Importantly, those drug candidates can be produced quickly relative to other methodologies, and given the modality and increasingly validated nature of the platforms, we have an expectation that most will do what they are designed to do. We've always had conviction that building and constantly expanding this machine is critical to our dual mandate of serving as many patients as possible and creating long-term, durable value. In the early to mid-stages of building a company around such a machine, we require partnerships to develop and commercialize non-core assets and provide capital for us to develop and commercialize our wholly owned assets while also reinvesting in the machine to expand its reach and capacity. When this is done well and in a timely fashion, it creates balance for us. Of late, we have become out of balance. The partnership we announced today with Sarepta is transformational because it returns balance to our business model, helps to focus our investment thesis without constricting upside potential, and puts us on a fairly straight path to profitability. Let's take a closer look at the deal. Arrowhead and Sarepta entered into a licensing and collaboration agreement that includes select programs utilizing multiple trim delivery systems targeting various tissue and cell types. Under the agreement, Arrowhead will advance each program to an agreed upon milestone, and then Sarepta will assume responsibility for further development and commercialization. These include select programs from three distinct buckets. One, certain Arrowhead clinical candidates. Two, certain Arrowhead non-clinical programs. and three discovery programs to be pursued jointly between Sarepta and Arrowhead. In the clinical candidate bucket, Arrowhead is granting Sarepta an exclusive license to the following four programs. One, AeroDUX4, as a potential treatment for patients with fascio-scapulohumeral muscular dystrophy type 1, or FSHD1. AeroDUX4 is currently dosing patients in a phase 1-2 clinical study. Two, AeroDM1, as a potential treatment for patients with type 1 myotonic dystrophy or DM1. Aero DM1 is currently dosing patients in a phase 1-2 clinical study. Three, Aero MMP7 as a potential treatment for idiopathic pulmonary fibrosis. Aero MMP7 has completed dosing healthy volunteers in a phase 1-2 clinical study and is currently dosing IPF patients to assess target engagement. And four, Aero Ataxin 2 as a potential treatment for spinocerebellar ataxia 2 or SCA2. AeroAtaxin 2 is in a Phase 1-2 study that is currently open for enrollment. In a non-clinical bucket, Arrowhead is granting Sarepta an exclusive license to three programs that utilize Arrowhead's next-generation trim platform for subcutaneous administration to the central nervous system. The programs are AeroHTT for Huntington's disease, AeroAtaxin 1, and AeroAtaxin 3, both for spinocerebellar ataxia. Lastly, in the discovery programs bucket, Sarepta can propose up to six new skeletal muscle, cardiomyocyte, or CNS targets on which Arrowhead will perform discovery and preclinical development. Sarepta would then receive an exclusive license to those programs and be responsible for clinical development and commercialization. During the five-year term of the agreement, Arrowhead will be excluded from working on a large list of skeletal muscle targets for its internal use or in partnership with other companies. Arrowhead will also be providing contract manufacturing services to Sarepta for clinical and eventually commercial drug supply for programs arising out of our collaboration. At close of the agreement, Arrowhead would receive the following, a $500 million upfront cash payment, $325 million through the purchase by Sarepta of Arrowhead equity priced at $27.25, representing a 35% premium to the 30-day volume-weighted average price of Arrowhead stock. $250 million to be paid in annual installments of $50 million over five years, and up to $300 million in near-term payments broken up in two separate payments of $100 and $200 million associated with the continued enrollment of certain cohorts in the Phase 1 study of Arrow DM-1, which Arrowhead may achieve during the next 12 months. Arrowhead is eligible to receive development milestone payments between $110 and $410 million per program, and sales milestone payments between $500 and $700 million per program. Arrowhead is also eligible to receive tiered royalties on commercial sales up to the low double digits. The total potential value of this deal exceeds $11 billion plus royalties. This is an important deal for both of our companies. In one transaction, it gives Sarepta multiple new promising pipeline opportunities, all with the potential to be best in class in areas where Sarepta has extensive development, regulatory, and commercial expertise, and where clear synergies exist with their existing organization. The folks at Sarepta are specialists in these areas, and we see them as having a high potential to maximize the value of the programs and be a dominant competitor. They are an ideal partner for us. For Arrowhead, the deal answers two primary questions the market had about us. First, we've seen general acceptance that our technology works and that current and future drug candidates have a good chance of becoming important medicines, but there was a lack of clarity about how we would pay for them, This deal provides us with substantial capital immediately and potential access to very large amounts of additional funding throughout the life of the collaboration and beyond. This cannot be overstated. According to our long-term plan and budget, we are now funded toward the end of 2028 and potentially through multiple commercial launches by Arrowhead and our partners. Second, we've built a massive clinical and preclinical pipeline across different therapeutic areas that has the potential to create substantial value, but A, It is difficult for the market to properly value everything there, particularly when it has been unclear what would remain wholly owned versus partnered. And B, it is difficult for us to build out clinical and regulatory expertise as well as commercial infrastructure across diverse therapeutic areas. This deal goes a long way toward providing a more manageable wholly owned pipeline focused on areas we intend to commercialize ourselves, namely in the cardiometabolic space. This more focused pipeline allows us to take advantage of the expertise we have built in clinical development and regulatory in the cardiometabolic area, and our growing medical affairs and commercial presence in the space as well. Now, in the cardiometabolic area, we're focusing resources on the following. Pladaciran, which is rapidly progressing toward commercial stage. Zodaciran, which is phase three ready. The APOC3-PCSK9-DIMR program that we expect to file a CTA on in 2025. Aero-INHBE. which should begin enrolling a Phase 1-2 study in the next couple months, AeroAlk 7, for which we expect to file a CTA shortly and begin enrollment by mid-2025, additional undisclosed adipose targeted programs, undisclosed CNS programs that leverage our systemic subcutaneous delivery, and possible cardiomyocyte targeted programs. These provide us with near-, mid-, and long-term value growth and leverage common resources and expertise, making us progressively more efficient for each subsequent program. This is a solid and scalable model. A focused pipeline also allows us to manage the growth of our R&D expenses. Four clinical candidates and three preclinical programs come off our books immediately, while still moving rapidly toward patients who need them. On the discovery side, we believe we have an engine that is second to none and has the potential to create substantial value, so we will not slow that down. We now have a partner that will take advantage of our significant discovery capacity and take as many as six new candidates that we are not yet working on into clinical studies. This is a great use of our discovery engine, represents scalable value creation, and leaves us with plenty of capacity for our own future wholly owned programs and additional partnerships. Another important piece of the Sarepta partnership that may be overlooked is the manufacturing component. Providing clinical and commercial material to Sarepta for programs included in this deal soaks up current excess manufacturing capacity in our new Verona manufacturing plant and defrays our operating costs. It also provides Sarepta with a high-quality, cost-effective partner for important RNAi medicines it will develop and ultimately commercialize. Our cardiometabolic focus and the Sarepta license agreement together do not capture all of our promising programs. Rather, we believe there are additional programs that we have that could be partnered at some point to capture additional value and ensure that they reach the patients who need them. The programs that sit in this category are the following. Arrow RAGE for asthma and COPD, which is phase 2 ready, and we are assessing various options and designs for moving forward. Arrow PMPLE-3 for MASH, which is also phase 2 ready, and for which we are also considering options. Arrow C3 and Arrow CFB in the complement space, which should both have clinical readouts by mid-2025. Arrow MAPT for Alzheimer's and other tauopathies. as well as Aero SCNA for Parkinson's, which both use what we believe is our very promising subcutaneous trim system for CNS delivery and are on schedule for CTAs in 2025. We are excited about each of these programs, and while we do not require partners immediately, our current strategy is to eventually find the right companies to develop and commercialize each one. In the meantime, we are assessing timing and possible additional development that could maximize risk-adjusted value to us. As part of this pipeline focus, we have decided not to pursue further development of Aeromuck 5AC. To be clear, this decision was not due to any emergent safety issue, but rather the inability to reliably assess target engagement with the availability of biomarkers. While we still believe that Aeromuck 5AC is an intriguing target for muco-obstructive diseases, we believe that we have programs without this biomarker limitation where we can better allocate capital. We have also made great progress with our lead program and potential first commercial product, plazaciran, from a clinical, regulatory, and commercial perspective, which Bruce and Annie will discuss in a moment. We now feel like all the pieces are in place to accelerate growth. Let's review what we see as the key steps that enable that growth. We have generated important Phase III data in the Palisade study of plazaciran in patients with genetically-defined and clinically diagnosed, FCS, forming the basis of submission of our first NDA. This is a big step for any biotech company, and we were excited to make that submission earlier this month. We now have field and home office medical affairs organizations in place within clinical development. We have also built out the key headquarters commercial infrastructure and are in the process of building out a commercial field team right-sized for this rare disease. We are confident that we will be ready for our potential first commercial launch in 2025, provided we receive positive FDA review and approval. We have also begun leveraging outsourced resources for European commercial launch, provided we receive positive EMA review and approval, which we intend to seek in 2025. We also have a comprehensive plidasterone phase three program for the large patient population with severe hyperglyceridemia, or SHTG. We believe there are three to four million people in the US making up this population, and there are very limited treatment options at present. We expect the studies needed for regulatory approval to be fully enrolled by mid-year 2025, leading to final patient visits in the middle of 2026 and potential SNDA fine at the end of 2026 or early 2027. We see this as a large patient population with inadequate treatment options that alone could make Plasastran a $2 to $3 billion per year drug. Further, we continue to see a big opportunity in a larger mixed hyperlipidemia market. Plazaciran has always looked like potentially powerful medicine for secondary prevention of ASCVD, as well as primary prevention for high-risk patients by the KOL community we've been working with. Addressing this patient population approximately doubles our revenue forecast for Plazaciran, but would require a cardiovascular outcomes trial, or CVOT, for approval. As such, we are waiting until we have better visibility on additional capital before launching this trial. Arrowhead now has a combination of traits that puts it in the strongest position ever in the history of a company. These include substantial immediate capital, the expectation of large amounts of additional non-dilutive capital in coming years via existing partnerships, a lead program that is gearing up for commercial launch, a lead program that could see substantial label expansion in coming years, a focused cardiometabolic pipeline that spans early discovery to phase three ready, a discovery engine capable of creating new candidates rapidly, strong partners in place for non-core assets, several non-core programs that could be partnered in the future for additional non-dilutive near and long-term capital, and a state-of-the-art high-capacity manufacturing facility that is qualified for clinical material now and could be qualified for commercial material soon. With that, however, I'd now like to turn the call over to Dr. Bruce Gibbon, who will discuss what we've accomplished with Plazaciran and the status of the Phase III program. Bruce?