Analyst Conference Summary

biotechnology

conference date: May 4, 2021 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2021 (fiscal Q2, second quarter 2021)

Forward-looking statements

Overview: Continuing to develop pipeline, got a big cash infusion from a collaboration with Takeda.

Basic data (GAAP):

Revenue was $32.8 million, up sequentially from $20.7 million, and up from $23.5 million year-earlier. Revenue is from up-front payments and milestones, not sales.

Net income was negative $26.8 million, down sequentially from negative $25.1 million, and down from negative $19.8 million year-earlier.

Diluted EPS was negative $0.26, down sequentially from negative $0.20, and down from negative $0.20 year-earlier.

Guidance:

$200 to $250 million cash burn in fiscal 2021.

Conference Highlights:

CEO Christopher Anzalone said "We expect a data-rich next couple months, including: ARO-HSD data in NASH patients and those at risk of having NASH; ARO-AAT data in patients with AAT liver disease; ARO-ENAC data in healthy volunteers and a small number of CF patients; ARO-HIF2 data in patients with renal cell carcinoma; ARO-DUX4 data in animal models for FSHD; Three of these expected data readouts relate to three cell types that, to our knowledge, have not been successfully addressed by RNAi in humans." We expect our pipeline to approximately double in size over the next few years.

Hopes to be able to target a new cell type every 18 to 24 months.

Arrowhead made an agreement with Takeda, in Q1 2021, to develop and commercialize ARO-AAT, which includes $300 million upfront, $740 million in potential milestone payments, a 50/50 profit sharing agreement in the U.S., and 20-25% royalty on net sales outside the U.S. At AASLD presented data that ARO-AAT for liver disease associated with alpha-1 antitrypsin deficiency, strongly reduced the production of mutant Z-AAT protein and led to improvements in multiple biomarkers.

In Q2 2021 reported positive interim 48-week liver biopsy results from the AROAAT2002 study, an open-label Phase 2 clinical study of ARO-AAT, being co-developed with Takeda Pharmaceutical as a treatment for liver disease associated with alpha-1 antitrypsin deficiency (AATD). The interim readout demonstrated consistent and substantial reduction in intra-hepatic mutant AAT protein (Z-AAT), both Z-AAT monomer and Z-AAT polymer; consistent decrease in histological globule burden; improvements in fibrosis; improvements in other relevant biomarkers of liver health. Arrowhead believes data could support an accelerated path to approval. [WM: Dicerna and Alnylam are competing together in this disease, but they are behind ARWR in their development timeline]

In Q4 2020 Arrowhead started a Phase 1b study of ARO-HIF2, the company's first tumor targeted investigational RNAi therapeutic, for patients with clear cell renal cell carcinoma.

Arrowhead submitted an IND for a Phase 2b clinical study of ARO-ANG3, an investigational RNAi therapeutic being developed for the treatment of mixed dyslipidemia, in Q1 2021.

In Q1 2021 announced a new candidate, ARO-DUX4, for treatment of FSHC (facioscapulohumeral muscular atrophy). It is Arrowhead's first muscle-targetted RNAi.

Amgen disclosed in Q2 2021 that Olpasiran (AMG 890) for lipoprotein(a) is expected to complete a Phase 2 study in Q2, with data in 1H 2022.

Expects to file at least two pulmonary CTAs (INDs), and one other, in calendar 2021.

In Q1 2021 submitted an IND for Phase 2b dose finding study of ARO-APOC3. In Q4 2020 released updated positive data for ARO-APOC3. In Q2 2020 Arrowhead completed enrollment of ARO-APOC3, being developed as a potential treatment for patients with severe hypertriglyceridemia. Preliminary results showed high levels of reduction in APOC3, ANGPTL3, triglycerides, and other lipid parameters. Planning Phase 3 study.

Other potential drugs are under development, some potentially could be partnered.

Cash and equivalents ended at $674 million, up sequentially from $416 million. Received a $300 million upfront payment in January 2021. Estimated cash burn rate is now $50 to $60 million per quarter.

Operating expenses of $61 million included $45 million for R&D and $16 million for G&A. Leaving operating income of negative $28 million. Other income $1 million.

Operating expenses are expected to increase over time with increased headcount and clinical activity.

Takeda collaboration revenue will be recognized over 2 years.

Q&A summary:

ENAC cystic fibrosis cohorts baselines? Doses were chosen before we saw data from healthy volunteers. Well tolerated so far. FEV1 inclusion criteria 40 to 90, average 70. It is a young patient population. We are looking for good knockdown in healthy volunteers. The first CF cohort is just 4 patients on the lowest dose. 50% ENAC knockdown would be good, should equate to clinical benefit. We should have cohort 2 and 3 data at some point this year.

50% ENAC knockdown, is that Vertex type levels? We don't know what knockdown equates to what benefit, we are looking at patients who do not benefit from Tricafta as the initial population. About 10% of all CF patients. We are not looking at histology in the first study. We don't know if it will work well, or not, with particular patient populations yet. If we can show even a 5% improvement in FEV1, that is a big win for this group of patients.

There are no good therapies for FSHD, and we believe we can knock it down, shown by our animal models. We have not seen data from competitors yet. We think we will be the first with this type of molecule to the clinic.

FEV1 and ENAC vs. Ionis data? We hope to do more than 4% to 5%, and it depends on how it relates to the level of lockdown. We believe there will be a dose related response and so very significant knockdown. The management of expectations for the first 4 patient readout is because it is a low dose and small sample size.

Pipeline strategy, Trim program, capital allocation, partnering? We are well capitalized. We could see several billion in milestone payments from partners. So we are not slowing down to conserve capital. Yet our burn is careful compared to competitors. Our pipeline will be too large for us to commercialize ourselves, so we will continue to selectively partner products.

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