ARWR: New Program Targeting Complement C3 Highlights Expanding Pipeline…

By David Bautz, PhD

NASDAQ:ARWR

READ THE FULL ARWR RESEARCH REPORT

Business Update

Pipeline Expansion Continues

Arrowhead Pharmaceuticals Inc ARWR is developing medicines that cause gene silencing using RNA interference (RNAi), a specific means of inhibiting the expression of genes and stopping the production of a specific protein. The company has a deep and diverse pipeline consisting of the following development product candidates, including nine in-house programs and seven partnered drugs, four with Johnson and Johnson (JNJ), one with Amgen (AMGN), one with Horizon Therapeutics (HZNP), and one with Takeda.

Recently, the company has announced the following additions to the pipeline:

1) ARO-C3: This program is targeting complement component 3 (C3). The complement pathway is a part of the innate immune system and C3 activation is required for the classical complement pathway, the alternative complement pathway, and the lectin pathway. While the company has not announced the specific indication(s) it will be targeting with ARO-C3, possible complement-mediated indications that may be amenable to C3 modulation include paroxysmal nocturnal hemoglobinuria, C3 glomerulopathy, and age-related macular degeneration.

2) ARO-XDH: This program is targeting xanthine dehydrogenase as a potential treatment for those with uncontrolled gout. Xanthine dehydrogenase catalyzes the final two steps in purine catabolism in which hypoxanthine is converted to xanthine and xanthine is converted to uric acid. An overproduction of uric acid can lead to gout, which is a multi-factorial disease characterized by acute inflammatory arthritis due to urate crystals being deposited in joints, tendons, and surrounding tissues. The company is developing ARO-XDH in collaboration with Horizon Therapeutics (HZNP), which included a $40M upfront payment.

3) Undisclosed pulmonary targets: Arrowhead has reached the IND-enabling stage for two new pulmonary programs whose identity has not been disclosed. We anticipate CTA's being filed for both of these programs in the first half of 2022.

Promising Preliminary Clinical Data for ARO-HIF2 and ARO-HSD

• ARO-HIF2 is designed to treat clear cell renal cell carcinoma (ccRCC) and targets hypoxia inducible factor 2α (HIF2α). Approximately 74,000 cases of kidney cancer were diagnosed in 2019, with approximately 70-80% of those being ccRCC. The Von Hippel-Lindau (VHL) tumor suppressor gene is inactivated in the majority of ccRCC cases. Phosphorylated VHL controls the degradation of HIFs, and numerous studies have shown that the overexpression of HIF2α is a driver of ccRCC. Thus, suppression of HIF2α may be a good target for treating ccRCC.

Thus far, ARO-HIF2 has been well tolerated up to 525 mg weekly and the company is currently dosing the 1050 mg/week cohort. Of the 17 patients treated thus far, nine had tumor samples that were evaluable. Seven of nine tumor samples showed a decrease in HIF2α protein H-scores (-9% to -82%; average -48%). In addition, one patient had a partial response with approximately 65% tumor shrinkage while five additional patients showed stable disease.

• ARO-HSD targets hydroxysteroid 17β-dehydrogenase 13 (HSD17B13), a member of the HSD17B family that is markedly upregulated in patients and mice with non-alcoholic fatty liver disease (NAFLD) (Su et al, 2019). Loss-of-function mutations in HSD17B13 provide the strongest known protection against non-alcoholic steatohepatitis (NASH) cirrhosis, alcoholic hepatitis, and cirrhosis (Abul-Husn et al., 2018). In the CDAA (choline-deficient, methionine-reduced, 60% fat) mouse model of NASH, once-weekly treatment with 3 mg/kg ARO-HSD resulted in decreased steatosis, inflammation, and hepatocyte degeneration along with inhibition of liver fibrosis.

Thus far, ARO-HSD has been well tolerated at 25, 50, 100, and 200 mg in healthy volunteers. Five NASH patients have received 100 mg on Day 1 and 29. Liver biopsies on Day 71 showed that HSD17B13 protein was decreased by 92% and 97% in two patients and was below the limit of quantitation (LOQ) in the other three patients. In addition, ALT decreased by an average of 46% (26%-53%), which is a very encouraging sign following only two doses of drug.

Promising Preclinical Data Presented for ARO-DUX4

ARO-DUX4 is Arrowhead's first muscle targeted program and is being developed for the treatment of facioscapulohumeral muscular dystrophy (FSHD). FSHD is a rare genetic disorder characterized by progressive muscle weakness and degeneration most notably in the face, shoulders, and upper arms, however it usually causes weakness in multiple muscle groups all over the body. The disease is caused by the inappropriate expression of the transcription factor double homeobox protein 4 gene (DUX4)(Gabriëls et al., 1999). Normally, hypermethylation of the end of chromosome 4 (known as D4Z4) keeps DUX4 silenced. However, in FSHD patients, hypomethylation of this region prevents DUX4 from being silenced. Aberrant expression of DUX4 dysregulates a number of different signaling pathways that culminates in cytotoxicity, particularly in muscle cells.

In June 2021, Arrowhead presented preclinical data on ARO-DUX4 at the FHSD Society International Research Congress. A copy of the presentation can be found here. The ability of the TRiM platform to be used in muscle was shown by multiple preclinical models, including 1) in mice in which a single 3 mg/kg intravenous dose resulted in 76-99% of myofibers in gastrocnemius containing TRiM RNAi; and 2) in non-human primates receiving three doses of 10 mg/kg of TRiM RNAi targeting myostatin there was 79% serum myostatin knockdown with a >70% reduction still observed at Week 12.

In regards to ARO-DUX4, in patient-derived myotubes ARO-DUX4 resulted in a dose dependent decrease in DUX4 expression along with decreased expression of DUX4 target genes, as shown in the following figure.

In a mouse model of FSHD with a tamoxifen-inducible human DUX4 gene, ARO-DUX4 prevented tamoxifen-induced increase in DUX4, prevented DUX4-induced body weight loss, prevented and reversed muscle fibrosis, and prevented rotarod performance loss.

While the company had hoped to file a CTA for ARO-DUX4 by the end of 2021, due to a lack of non-human primates being available for required toxicology studies we don't anticipate a CTA filing until the first half of 2022.

ARO-AAT Granted Breakthrough Therapy Designation

In July 2021, Arrowhead announced that ARO-AAT was granted Breakthrough Therapy designation by the FDA. ARO-AAT was previously granted Orphan Drug designation and Fast Track by the FDA and Orphan designation from the EMA.

In addition, in June 2021 the company presented additional clinical data from the AROAAT2002 open-label Phase 2 study at the European Association for the Study of the Liver (EASL). The data were based on 24 weeks (cohort 1, n=4) or 48 weeks (cohort 2, n=5) of treatment with ARO-AAT. The results showed:

• Serum Z-AAT levels decreased for all patients

• Median decrease in intra-hepatic Z-AAT levels:

◦ Total Z-AAT: -80.1% (-72% to -97%)

◦ Monomer: -90% (-79% to -97%)

◦ Polymer: -81% (-42% to -97%)

• Histological globule burden was reduced in all nine patients; two patients achieved full resolution

• Six of nine patients achieved a ≥1 stage improvement in Metavir fibrosis stage with no worsening of fibrosis in the other three patients:

◦ Two patients had baseline F4 fibrosis (cirrhosis); one of those patients achieved two-stage improvement to F2 while the other achieved one-stage improvement to F3

• Liver stiffness, ALT, GGT, and PRO-C3 improved across the board

• ARO-AAT was generally well tolerated after up to one year of treatment

These results are incredibly encouraging and show that when Z-AAT protein is cleared the liver has the ability to heal, including in patients with severe liver disease (cirrhosis). The company will be meeting with regulators in the second half of 2021, and we believe part of those discussions could center on accelerating the development of ARO-AAT.

Phase 2b Trials Underway for ARO-APOC3 and ARO-ANG3

In June 2021, Arrowhead announced the initiation of Phase 2b trials for both ARO-APOC3 and ARO-ANG3, both of which are cardiometabolic candidates wholly owned by Arrowhead.

The AROAPOC3-2001 trial is a double blind, placebo controlled, Phase 2b study in adults with severe hypertriglyceridemia, which is defined as having mean fasting triglycerides (TGs) ≥ 500 mg/dL (NCT04720534). A total of 300 patients are expected to be enrolled in the study, with 100 participants per dose cohort (10, 25, 50 mg) randomized 3:1 between active and placebo. Each participant will receive subcutaneous injections on Day 1 and Week 12. The primary outcome is the percent change in TGs at Week 24 with multiple secondary outcomes examining a wide range of metabolic outcomes at Week 48.

The AROANG3-2001 trial is a double blind, placebo controlled, Phase 2b study in adults with mixed dyslipidemia, which is defined as: 1) low-density lipoprotein cholesterol (LDL-C) ≥70 mg/dL or non-high-density lipoprotein cholesterol (non-HDL-C) ≥100 mg/dL; and 2) mean fasting TGs ≥ 150 mg/dL but < 499 mg/dL (NCT04832971). We anticipate a total of approximately 180 participants being enrolled in the study evenly across three dosing cohorts (50, 100, 150 mg) and randomly assigned in a 3:1 ratio to receive study drug or placebo. Participants will receive a subcutaneous injection on Day 1 and Week 12 with a primary outcome of percent change in TGs at Week 24 with multiple secondary outcomes examining a wide range of metabolic outcomes at Week 36.

ARO-ENaC Trial Paused

In July 2021, Arrowhead announced a voluntary pause in AROENaC1001, a Phase 1/2 clinical study of ARO-ENaC. The pause was enacted following receipt of a preliminary update from an ongoing chronic toxicology study in rats in which there was an unexpected signal of local lung inflammation. Arrowhead has an ongoing chronic toxicology study in non-human primates and we anticipate an update from the company once that study is completed, which likely won't be until the end of 2021.

Financial Update

On August 5, 2021, Arrowhead announced financial results for the third quarter of fiscal year 2021 that ended June 30, 2021. The company reported revenue of approximately $45.9 million for the third quarter of fiscal year 2021 compared to approximately $27.4 million for the third quarter of fiscal year 2020. This revenue consists of the recognition of $35.7 million associated with the Takeda License Agreement and the $10 million milestone payment from Janssen for ARO-JNJ1.

R&D expenses for the three-month period ending June 30, 2021 were $59.3 million compared to $32.6 million for the three-month period ending June 30, 2020. The increase was primarily due to increased salaries, clinical trial costs, and non-cash stock-based compensation. G&A expenses for the third quarter of fiscal year 2021 were $18.4 million compared to $10.7 million for the third quarter of fiscal year 2020. The increase was primarily due to non-cash, stock-based compensation along with increased travel, office, and property tax expenses.

Arrowhead exited the third quarter of fiscal year 2021 with approximately $644.7 million in cash, cash equivalents, and investments. As of August 2, 2021, Arrowhead had approximately 104.3 million shares outstanding and, when factoring in stock options and restricted stock units, a fully diluted share count of approximately 111.7 million.

Conclusion

We are glad to see that Arrowhead is continuing to advance its multiple clinical candidates while at the same time expanding its pipeline. The initial data from ARO-HSD and ARO-HIF2 are very encouraging, and the data for ARO-AAT continues to impress. While the setback for ARO-ENaC is disappointing, we believe this is unique to that program and we will be curious to see the results of the non-human primate toxicology study as the company tries to determine what caused the lung inflammation in the rat study. With no changes to our model, our valuation remains at $100.

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