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ARWR’s 2019 Goals Include Data From Several Studies, Initiation of Ph2 ARO-AAT

02/12/2019
By Brian Marckx, CFA

NASDAQ:ARWR

READ THE FULL RESEARCH REPORT HERE

2019 Goals Include: Data from HBV, ANG3 and APOC3 (and possibly AMG-890), Begin AAT Ph2 Program 

Arrowhead’s (NASDAQ:ARWR) clinical programs are showing no signs of slowing down with 2019 already slated to be a very busy year.  In fact, management’s roster of goals for fiscal 2019 implies that activity should accelerate further and include data from of several of their ongoing and new clinical trials and initiation of a Phase II program for ARO-AAT (in alpha-1 antitrypsin deficiency).  Data is expected during the year from ARO-HBV (chronic hepatitis B) Phase I/II as well as two Phase I studies in hypertriglyceridemia; ARO-ANG3 (targeting ANGPTL3) and ARO-APOC3 (targeting apoC-III).  ARO-ANG3 commenced dosing in early January (see below) while the Phase I ARO-APOC3 study, which has ethics approval, is awaiting regulatory go-ahead.  We could also potentially get results from the Phase I study of AMG 890 (cardiovascular disease), for which ARWR is partnered with Amgen.   

In addition, Arrowhead hopes to make additional progress with their preclinical candidates including anticipated filing of clinical trial applications (CTA) for their two non-liver programs; ARO-ENaC (cystic fibrosis) and ARO-HIF2 (clear cell renal cell carcinoma).  

As it relates to a Phase II program for ARO-AAT…
Management indicated on the Q1 call that a Phase II study for ARO-AAT could potentially not only move along rapidly, but also possibly even act as a pivotal study for the alpha-1 antitrypsin deficiency candidate.  Long-term toxicology studies are now complete and discussions, which initiated in October, are ongoing with FDA around design of a Phase II study.  Given that AAT-related liver disease is a novel target, ARWR and FDA are essentially designing from scratch – while that may imply a possibly more involved undertaking, eventual ‘success’ (i.e. FDA’s blessing) could represent a more atypically significant step forward and a potential value inflection event.  We will be eager to hear future updates on ARWR’s discussions with FDA regarding the study design, including proposed endpoints.    

As it relates to ARO-ANG3 Phase I Study…
In early January Arrowhead announced commencement of dosing of the initial subjects enrolled in their Phase I study (ARO-ANG1001) evaluating the safety, tolerability, PK and PD effects of ARO-ANG3 in healthy individuals and those with dyslipidemia.  As a reminder, ARO-ANG3 is ARWR’s subcutaneously-administered RNAi-based candidate developed to target angiopoietin like protein 3 (ANGPTL3), which has shown to be involved in the regulation of lipoprotein levels, including triglycerides, LDL cholesterol, HDL and very low-density lipoprotein cholesterol.

This Phase I study, expected to enroll up to 70 subjects, has single and multiple dose phases.  The single-dose portion will include 4 cohorts, each consisting of 10 healthy adults (6 treatment, 4 placebo), with each participant receiving a single dose (ARO-ANG3 or placebo) at 35mg, 100mg, 200mg or 300mg.  The multi-dose portion encompasses up to 4 patient cohorts including those with non-alcoholic fatty liver disease (NAFLD), those on statin treatment with high LDL cholesterol and triglycerides, those with familial hypercholesterolemia, and patients with severe hypertriglyceridemia.  

Preclinical (mouse and monkey models) results have been promising, showing substantial and durable reductions in serum ANGPTL3 and liver mRNA, as well as reductions in triglycerides and LDL levels.  Over 90% knock down was observed in mouse models.  In addition to representing a potential eventual treatment for dyslipidemia, ARO-ANG3 could have utility in certain metabolic diseases as well, including NAFLD and nonalcoholic steatohepatitis (NASH).  All of these represent significantly sized markets and with unmet therapeutic needs.  

As it relates to ARO-APOC3 Phase I study…
Also in early January, ARWR announced that they submitted an application to New Zealand regulatory authorities requesting approval to begin a phase I study of ARO-APOC3, ARWR’s subcutaneously-administered RNAi-based candidate targeting Apolipoprotein C-III (apoC-III) and being developed for the treatment of hypertriglyceridemia.  Management noted on the fiscal Q1 2019 call that they have received ethics approval, are awaiting regulatory feedback and are preparing to commence the study once approvals are granted.  

The study, expected to enroll up to 63 subjects, also has single and multiple dose phases and will be used to help inform subsequent development.  It is expected to enroll both healthy subjects and various populations of patients with elevated triglycerides. Up to 90% knock down was observed in rodent models.       

Q1 2019 Results
Arrowhead reported financial results for their fiscal 2019 first quarter ending December 31, 2018.  Total revenue was $34.7M (versus our $55.8M estimate), representing recognition of a portion of the $197.8M transaction price of the Janssen / JJDC collaboration agreement, which closed in late October 2018.  Management expects the majority of the $197.8M to be recognized as revenue in the current fiscal year, with the remainder expected to be booked in 2020.   

As a reminder, ARWR received $250M upfront and is eligible for another $3.5B in potential additional milestones and for royalties on eventual commercial sales.  The collaboration is expected to speed development of ARWR’s hepatitis B therapeutic candidate, ARO-HBV (which subsequently changed names to JNJ 3989).  The upfront payment consists of $175M cash from Janssen plus a $75M equity investment (@ $23.00/share) from Johnson & Johnson Innovation – JJDC, Inc.  

In return, Janssen receives worldwide exclusive license to ARO-HBV and an option to collaborate with ARWR on up to three additional RNAi therapeutics for new targets (to be selected by Janssen).  Janssen will be solely responsible for development and commercialization beyond ARWR’s ongoing Phase 1/II study.  The other optional targets will leverage ARWR’s TRIM platform technology but will not include any of the company’s current pipeline.  For these optioned targets, Janssen will fund initial discovery and preclinical work by ARWR and will take over each program following an IND filing by ARWR.     

Specifically, as it relates to potential milestone payments, ARWR is eligible to receive $1.6B for the HBV license, which is inclusive of $50M in a milestone for a Phase 2 study.  Up to another $1.9B could be received for the agreement related to other three targets.  Commercial sales royalties would be tiered and at a rate of up to the mid-teens percentage. 

Q1 operating expenses were $23.7M (versus our $22.7M estimate), which includes $17.6M ($17.2M E) of R&D expense and $6.1M ($5.5M E) in salary/G&A expense.  We continue to expect OpEx, and in particular R&D expense, to increase as ARWR’s various studies progress to later stages and as new clinical candidates enter the pipeline.   

EPS was $0.13, compared to our and average consensus estimates of $0.38 and $0.54, respectively.
 
Cash
ARWR exited fiscal Q1 with $303.3M in cash and investments, inline with management’s prior guidance of ending the quarter with approximately $305M.  The increase from fiscal Q4 2018 ($30.1M) is mostly a result of proceeds from the Janssen collaboration.  ARWR generated $168.3M (or $15.8M ex-changes in working capital) in cash from operations. 

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