ARWR - NASDAQ

Ladies and gentlemen, welcome to the Arrowhead Pharmaceuticals Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only. 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.

Thank you. And good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's Results for its Fiscal 2024 Third Quarter ended June 30 2024. With us today from management are President and CEO, Dr. Chris Anzalone, who will provide an overview of the quarter; Dr. Bruce Given, 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 commercial activities; and Ken Myszkowski, Chief Financial Officer, who will give a review of the financials. Dr. James Hamilton, Chief of Discovery and Translational Medicine; and Patrick O'Brien, COO and General Counsel, will also 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 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. Arrowhead has spent a substantial amount of time building a scalable platform on which a large number of diverse and innovative new medicines have been and will continue to be built. This is the basis of our 20 and 25 initiative where we expect to grow our pipeline to at least 20 clinical stage or marketed products by next year. Think about what that means for any company, much less one of our size. This initiative represents our commitment to reduce the overall risk profile of the company while expanding our upside potential, and this is important for our long-term value creation. In the short term, however, we need to balance our platform development work with intense focus on bringing our first wholly owned drug candidate to market as quickly and efficiently as possible. We expect that candidate will be plozasiran, and we expect the initial launch to be next year if approved for use in familial chylomicronemia syndrome or FCS. We're working hard to ensure that plozasiran moves rapidly through regulatory NDA and MAA filings for FCS, while executing Phase III clinical studies for SHTG, the second potential indication in our cardiovascular outcomes trial, or CVOT, for mixed hyperlipidemia, the third potential indication. We believe that plozasiran represents a pipeline within a single drug, given the multiple patient populations we can address with it. Bruce will talk about the progress in this program in a moment. We are currently building out our commercial infrastructure to enable an initial launch in 2025 and then scale to support progressively larger patient populations over the coming years. Andy will talk about where we are with this process in a moment. On September 1, 1987, the first statin was approved by the FDA. This event changed the world because it ushered in an era during which physicians would appreciate the risks associated with high LDL cholesterol and importantly would have the tools to lower it. It feels to us like we are at a similar point with triglycerides with a few notable differences. First, we have the luxury of being able to grow our way into a large market. We expect to begin commercializing plozasiran in the small FCS market then grow into the large SHTG market around 2027 and ultimately serve the very large mixed hyperlipidemia market after CVOT is complete. Second, we feel like we are virtually alone in our ability to drastically lower triglycerides and therefore serve these markets appropriately. While there have been 8 FDA-approved statins to compete to lower LDL, our data suggests to us that there is simply no other near-term therapies that can match plozasiran's activity. If triglycerides or bad actors, wouldn't patients and physicians want to lower them as much as possible? We believe they will. This is a big commercial opportunity, and we believe Arrowhead has the most promising medicine that is poised to make a big impact over the coming years. Before discussing other progress we've made recently, I want to talk about the announcement we made this afternoon. I think it's clear that we have dramatic upside opportunities in plozasiran in the near term and in multiple other programs over the medium and long term. What was less clear to investors was how we would finance these development programs until we get to a point where commercial revenue becomes a significant source of capital and ultimately brings us to cash flow positive position. To that end, today, we announced a transaction with Sixth Street that provides an immediate and meaningful strengthening of our balance sheet with long-term, low-cost, non-dilutive capital to fund innovative -- I'm sorry, to fund innovation and growth opportunities across Arrowhead's pipeline. The $500 million senior secured credit facility includes $400 million funded at close, with an additional $100 million available at Arrowhead's option, subject to mutual agreement between Sixth Street and Arrowhead during the 7-year term of the agreement. This is debt, but the risk-sharing structure is very attractive to us. There are no scheduled amortization payments during this term and no scheduled cash pay coupon interest payments. In addition, it has an attractive 7-year term during which we hope to be building our commercial revenue substantially. It has other risk-sharing characteristics where payments are to be made to partially repay loans under the credit facility with a portion of the proceeds from certain transactions such as future inflows from partnerships and collaborations and commercial revenue. So we don't really have cash outflow obligations unless we have cash inflows from other sources. This deal makes a lot of sense for us and the great team at Sixth Street has been creative in building a custom structured product that is appropriate for Arrowhead. This growth capital comes at a perfect time. During the quarter, we also announced a $50 million milestone payment that we received from Royalty Pharma following the completion of enrollment of the Phase 3 OCEAN(a) Outcomes Trial of olpasiran, being conducted by Amgen. These are important steps to build our balance sheet but not the last. We view our capital needs through the lens of plozasiran development and see the potential for significant revenues coming out of the SHTG market. As such, we want to ensure that we have a financial bridge to that market, which we believe we could launch into in 2027. We have many tools to fund operations over those 3 years, including potential milestone payments from our existing four partnerships, new partnerships and license agreements, possible financing and return for caps royalties on plozasiran sales and revenue from commercializing into the FCS market, which we expect to begin next year. Before turning the call over to Bruce to discuss the plozasiran clinical programs and data, I want to review a few other key accomplishments from the recent period. First, we announced top line results from the pivotal Phase 3 PALISADE study of plozasiran in patients with FCS. The study met its primary endpoint in all key secondary endpoints. We see these data as best-in-class. This is Arrowhead's first therapy to show clinical efficacy in a Phase 3 study, which represents validation of all the hard work from so many talented Arrowhead employees, our collaborators and the FCS community over the years. Also during the quarter, we presented new interim clinical data on ARO-RAGE, our investigational RNAi-based medicine for the treatment of inflammatory lung diseases, such as asthma at the American Thoracic Society 2024 International Conference. These were important data as they represent not only translation of preclinical data to clinical data in normal healthy volunteers but also to an asthma patient population. We are currently working on the design of a Phase 2 study of ARO-RAGE. Turning to the earlier side of our pipeline, we presented preclinical data on ARO-INHBE at the American Diabetes Association, or ADA, 84th Scientific Sessions. INHBE is an investigational RNAi-based medicine that we are studying for the treatment of obesity and metabolic diseases. In pharmacological studies in obese and diabetic mouse models, INHBE-siRNA administration resulted in multiple promising findings, including the following, 95% reduction in INHBE/mRNA expression, 19% suppression of body weight compared to saline controls, 26% loss of fat mass and importantly, preservation of lean mass. Our preclinical data presented at ADA suggests that INHBE reduction with siRNA is a promising new approach to address obesity and metabolic diseases, and we think support advancing ARO-INHBE into clinical trials. We'll be discussing these data and also announcing a new program that directly targets adipose tissue next week at our R&D webinar on obesity and metabolic diseases. These are exciting additions indeed to our cardiometabolic franchise. Please note the new date of this event is August 14. It was originally planned for August 15, but the date was changed to accommodate the schedule of an external speaker who will be joining us. So be sure to listen in as these early-stage programs in our cardiometabolic pipeline are particularly interesting and fit well with our growing development and commercial presence in the space. Lastly, since we have so much going on in our broad pipeline, during the quarter we launched the 2024 summer series of R&D webinars to highlight some of our work. Each month starting May and ending in September, we highlight different therapeutic areas and programs in our pipeline. We have now completed webinars on our muscle programs, our late-stage cardiometabolic programs and our pulmonary programs. As I mentioned, next week, on August 14, we will cover our obesity and metabolic programs. And in September, we will cover our CNS programs, including updates on the delivery platforms and on undisclosed candidates planned to enter clinical development this year. Clearly, there's a lot going on and a lot to be excited about at Arrowhead. With that overview, I'd now like to turn the call over to Bruce. Bruce?

Thank you, Chris. Good afternoon, everyone. We've been very impressed with the clinical data generated with plozasiran in each patient population we've studied. And we believe it is best in class across the board. Starting in healthy volunteers and moving to patients with mixed hyperlipidemia and severe hypertriglyceridemia or SHTG, and on to patients with genetically or clinically diagnosed FCS, we have seen very consistent high levels of target engagement and downstream changes to lipids and lipoproteins. This makes sense and was our expectation, but it's still gratifying to see data meet or exceed expectations. To review, Apolipoprotein C-III or APOC3 is the gene target for plozasiran. It is a component of triglyceride-rich lipoproteins, or TRLs, and a known regulator of triglyceride metabolism. APOC3 inhibits the breakdown of TRLs by lipoprotein lipase and inhibits uptake of remnant cholesterols in the liver. The goal of treatment of plozasiran is to reduce the level of APOC3, thereby reducing triglycerides and restoring lipids to more normal levels. Over the past few months, we have been presented -- we have presented and published Phase 2 data on plozasiran in patients with mixed hyperlipidemia in the MUIR study and in patients with SHTG in the SHASTA-2 study. We have also reported top line results from the PALISADE Phase 3 study in patients with FCS. I want to spend a moment going over the highlights from these studies. Starting with mixed hyperlipidemia in the MUIR study, treatment with plozasiran in mixed hyperlipidemia achieved reductions in triglyceride rich lipoproteins, a genetically validated target associated with increased risk of atherosclerotic cardiovascular disease. These data were presented in an oral presentation at the European Atherosclerosis Society, 92nd Congress and simultaneously published in the New England Journal of Medicine. At week 24, representing trough effect after two quarterly doses, plozasiran treatment was associated with placebo-adjusted reductions in triglycerides of up to minus 62%. Fasting triglyceride levels were normalized, which means patients achieved levels below 150 milligrams per deciliter in 79% to 92% of patients randomized to a treatment arm. Commensurate reductions in APOC3 of up to 79% were observed with strong positive correlations with changes in triglyceride levels. There were other important changes in other atherogenic lipoprotein parameters, including non-HDL-C, apolipoprotein B and remnant cholesterol, with strong correlations with the reductions in triglyceride levels. Plozasiran demonstrated a favorable safety profile in the MUIR study. The overall rates of occurrence of treatment emergent adverse events and discontinuations were similar for plozasiran and placebo throughout the 48 weeks of observation. Mixed hyperlipidemia also called mixed dyslipidemia is a highly prevalent disorder characterized by elevated LDL cholesterol and triglyceride levels. Despite the efficacy of LDL-lowering therapies and reducing atherosclerotic cardiovascular disease in mixed hyperlipidemia, there remains substantial residual risk attributed to elevated non-HDL cholesterol, driven by remnant cholesterol and triglyceride-rich lipoproteins. Genome-wide association and Mendelian randomization studies also support a causal role for triglyceride-rich lipoproteins in atherosclerotic cardiovascular disease. Based on the promising results from the MUIR study, we are now gearing up to initiate the Phase 3 CAPITAN cardiovascular outcomes trial, which is designed to enroll patients with mixed hyperlipidemia and who have had or are a risk for a cardiovascular event. Moving on to the SHTG population, there are patients with much higher triglyceride levels than generally seen in the mixed hyperlipidemia population. For SHTG, we presented data from the SHASTA-2 study at the American College of Cardiology Meeting this spring and simultaneously published the results in the journal JAMA Cardiology. In SHASTA-2, treatment with plozasiran led to dose-dependent placebo-adjusted reductions in week 24 in triglycerides of up to minus 57%, driven by reductions in APOC3 of up to minus 77%. Mean maximum non-placebo adjusted reductions from baseline and triglycerides in APOC3 were up to minus 86% and minus 90%, respectively, and typically occurred around week 16 or week 20. Among subjects treated with plozasiran, at the week 24 trough time point, greater than 90% achieved -- receiving the 25 or 50 milligram doses achieved triglycerides less than 500 milligrams per deciliter, an important threshold associated with increased risk of acute pancreatitis. In addition, around half of the subjects of these doses achieved normal triglyceride levels of less than 150 milligrams at week 24, which is surprising given the mean high starting levels of almost 900 mgs per deciliter. In addition to reduction in triglycerides, subjects treated plozasiran also showed improvements in multiple atherogenic lipid and lipoprotein levels, including remnant cholesterol, HDL cholesterol and non-HDL cholesterol. Plozasiran demonstrated a favorable safety profile at SHASTA-2, observed adverse events generally reflected the comorbidities and underlying conditions of the study population. SHTG is characterized by triglyceride levels greater than 500 mgs per deciliter and is known to significantly increase the risk of atherosclerotic cardiovascular disease and acute pancreatitis, which can occur with recurrent attacks requiring repeat hospitalization admissions and worsening outcomes. Pancreatic risk increases as triglyceride levels increase. Currently available drug therapies generally don't sustainably reduce triglycerides below the pancreatitis risk threshold in this patient population. Based on the promising SHASTA-2 data, we have initiated and started dosing in both the SHASTA-3 and SHASTA-4 Phase 3 studies in patients with SHTG. We are also working towards initiating SHASTA-5, a Phase 3 study in patients with SHTG that are at high risk of acute pancreatitis. SHASTA-5 will have a primary endpoint of incidence of new episodes of pancreatitis compared with placebo. We do not see this study as necessary for regulatory approval in SHTG, but we do see it as an important study to potentially show the value of treatment with plozasiran in reducing the risk of acute pancreatitis. If positive, these results should be helpful for all stakeholders, including patients, health care providers and payers. Lastly, during the quarter, we gave a top line report on the Phase 3 PALISADE study in patients with genetically confirmed or clinically diagnosed FCS. The strong results from PALISADE significantly build upon the promising results from the Phase 2 SHASTA-2-and MUIR studies. The primary endpoint for the PALISADE study was placebo-adjusted median change in triglycerides in month 10. At that time point, patients treated with quarterly doses of 25 and 50 milligrams plozasiran achieved median triglyceride reductions of minus 80% and minus 78%, respectively. About 12 patients treated with 25 and 50 milligrams plozasiran, achieved median triglyceride reductions of minus 78% and minus 73%, respectively. These compared with the median triglyceride reductions of placebo-treated patients of minus 17% in month 10 and minus 7% in month 12. Mean reductions in APOC3 at month 10 were minus 88% and minus 94% at 25 and 50 milligrams plozasiran, respectively. All of these changes were highly significant when comparing plozasiran to placebo. PALISADE successfully met the primary endpoint in all key secondary endpoints, including reducing the incidence of acute pancreatitis compared to placebo. There were four multiplicity-controlled key secondary endpoints. Percent change for baseline in month 10 to 12 averaged in fasting triglycerides, percent change from baseline in month 10 in fasting APOC3, percent change from baseline in month 12 in fasting APOC3. And finally, incidents of positively adjudicated events of acute pancreatitis during the randomized period. Plozasiran demonstrated a favorable safety profile in the PALISADE study, the number of subjects reporting emergent adverse events were similar in the plozasiran and placebo groups, severe and serious AEs were less common with plozasiran than with placebo. The most common AEs reported were abdominal pain, COVID-19, nasopharyngitis, headache and nausea. This study was accepted as a late-breaker oral presentation at the European Society of Cardiology 2024, coming up on September 2, 2024 in London. Since that's Labor Day in the U.S., we also plan to have an investor call the following day on September 3, 2020. Dr. Gerald Watts, a principal investigator for PALISADE and the presenter of the data at the European Society of Cardiology, will join the investor call to present the data and discuss the exciting results. I'll now turn the call over to Andy to give a few remarks on where we are with commercial planning and readiness. Andy?

Thank you, Bruce. We're on track with our launch preparations for plozasiran in familial chylomicronemia syndrome, or FCS. And let me begin by talking a little bit about our Expanded Access Program, or EAP. We initiated the EAP to ensure patients who roll off our PALISADE trial, maintain access to plozasiran and to make investigational plozasiran available outside of a clinical trial for other patients with FCS who meet certain program eligibility criteria, if requested by their treating physician. We've fielded requests for additional information about the EAP from physician societies and treating physicians who may have appropriate FCS patients. And our medical affairs team is already out in the field engaging with these individuals to help them understand the program. As you know, this would be Arrowhead's first commercial product. So we're building a best-in-class organization that will support the patients who we hope will benefit from plozasiran. This is obviously a big task, but we're up to the challenge. The buildout of our medical affairs and commercial infrastructure is right where it needs to be at this time in commercialization. Our entire medical affairs and commercial leadership team is solidly in place, and the team we've assembled has deep experience in the cardiometabolic and lipid therapeutic areas. We've already done extensive mapping of the health care professionals, or HCPs, most likely to treat FCS patients and prescribe plozasiran if approved. Our market research leads us to believe these HCPs have been impressed with the top line results from our PALISADE trial with particular note of the unprecedented triglyceride lowering and statistically significant reduction of acute pancreatitis risk. As Bruce mentioned, plozasiran achieved deep and durable reductions in triglycerides of approximately minus 80% from baseline, demonstrating for the first time the real possibility for FCS patients to lower their triglycerides below important guideline-directed thresholds of acute pancreatitis risk. Finally, our best-in-class patient and caregiver support program is taking shape. We've selected an exclusive specialty pharmacy and patient hub with expert support for patients with rare conditions and we're presently crafting the finer details of our patient and caregiver support ecosystem to ensure patients can easily start and stay on therapy. I look forward to talking more with you in the future about how we see the commercial market opportunity and how we intend to bring plozasiran to the many patients who could benefit from this new therapy. I'll now turn the call over to Ken.

Thank you, Andy, and good afternoon, everyone. As we reported today, our net loss for the quarter ended June 30, 2024, was $170.8 million or $1.38 per share based on $124.2 million fully diluted weighted average shares outstanding. This compares with a net loss of $102.9 million or $0.96 per share based on $107 million [ph] fully diluted weighted average shares outstanding for the quarter ended June 30, 2023. No revenue was recorded in the quarter ended June 30, 2024. Revenue of $15.8 million was recorded in the quarter ended June 30, 2023. Revenue is recognized as we complete our performance obligations or key developmental milestones are reached. Revenue in the prior period primarily related to the recognition of payments received from our license and collaboration agreement with Takeda. Total operating expenses for the quarter ended June 30, 2024, were $176.1 million compared to $118.5 million for the quarter ended June 30, 2023. The key drivers of this change were increased research and development costs, primarily discovery and candidate costs as the company's pipeline of discovery candidates has advanced into novel therapeutic areas and tissue types and clinical candidates has increased and progressed into later stages of development. Net cash used in operating activities during the quarter ended June 30, 2024, was $115.4 million compared with $21.4 million for the quarter ended June 30, 2023. The increase in cash used in operating activities is driven primarily by higher research and development expenses, as well as lower cash revenue versus the prior year. Our footprint expansion is mostly complete with final payments to be made over the next several months, totaling about $30 million, after which we expect capital expenditures to be nominal. Turning to our balance sheet. Our cash and investments totaled $436.7 million at June 30, 2024, compared to $403.6 million at September 30, 2023. The increase in our cash and investments was primarily related to the $450 million equity issuance, partially offset by ongoing cash burn. Today, we announced a financing agreement with Sixth Street for significant long-term non-dilutive capital. The $500 million senior secured credit facility includes $400 million funded at close and an additional $100 million available at Arrowhead's option, subject to mutual agreement between Sixth Street and Arrowhead. Inclusive of the upfront cash from Sixth Street before deducting fees, our pro forma cash balance is approximately $840 million and significantly enhances our liquidity toward our global commercial launch of plozasiran, while also supporting advancement of our late-stage clinical trials and other discovery efforts. Our common shares outstanding at June 30, 2024, were $124.2 million. With that brief overview, I will now turn the call back to Chris.

Thanks, Ken. We had a highly productive quarter and feel that all pieces are now in place to begin the transition into a commercial stage company. Completed Phase 3 study in PALISADE that we intend to use to file for regulatory approval to launch plozasiran in patients with FCS. The SUMMIT suite of clinical studies, including PALISADE and the Shasta, MUIR and CAPITAN studies are all underway or at advanced stages and are designed to show the value of plozasiran in multiple patient populations. As I mentioned, we view plozasiran as a pipeline within a single drug, and these studies have the potential of enabling that. Our commercial organization is taking shape, and we have a thoughtful strategy to grow in support of plozasiran as the clinical studies and ultimately the product label grows into progressively larger patient populations. And lastly, we have taken the next steps to execute on our long-term financing strategy and now have a stronger balance sheet, enabling us to better fund innovation and growth opportunities across Arrowhead's robust and diverse pipeline of RNAi therapeutics. We have focused most of this call on plozasiran, but of course, we have a large stable of value drivers under it that continue to move forward. Our pulmonary franchise with three current clinical candidates are muscle franchise with two current clinical candidates and our complement franchise with two current clinical candidates, all continued to progress over the quarter. By the end of the year, we expect to file CTAs in support of two obesity candidates and 2 CNS candidates, and you will hear more about those programs at our webinars on August 14 and September 25, respectively. Our partner [ph] programs also made progress as the Olpasiran Phase 3 against Lp(a) is fully enrolled, and the plozasiran [ph] Phase 3 against AAT continues to enroll patients. Our HBV and HSD programs with GSK are both in Phase 2 studies, and we continue to weigh our options with the PNPLA3 program that we started with J&J, and we now wholly own. We think these potential value drivers will play an important role in the future of Arrowhead, either as marketed products themselves or part of the steps that we take to bridge plozasiran to commercialization. Thank you for joining us today. And I would now like to open the call to your questions. Operator?

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Maury Raycroft from Jefferies. Please go ahead.

Hi, congrats on the quarter, and thanks for taking my questions. I'm going to start off with FCS. Just wondering if you can provide more perspective on what additional details we should expect to see at the ESC meeting. And the study hit statsig [ph] on reducing acute pancreatitis in the small sample size, whereas Ionis didn't show statsig difference, what are your latest thoughts on how your FCS label could look like versus Ionis' Olezarsen?

Well, so let's take the first question first. I do expect that the presentation will give much more detail especially on the primary and secondary endpoints, but I think also on -- more broadly on some of the more exploratory or secondary endpoints. But focus, I think, will be on primary and alpha-controlled secondaries, all of which were statistically significant, but most of which haven't really been fully exposed to the investor and scientific communities. As far as pancreatitis goes, I mean, that's obviously exciting for us. And we're really happy to achieve statistical significance there. And it's going to be, obviously, an important part of our filing with the FDA as well. And it will be interesting to see how they view the data. But we're certainly excited about it.

Got it. And maybe one more quick one. Just are you saying how many patients are enrolled in the Expanded Access Program?

No, we have not done [ph]

Okay. Thanks for taking my questions. I'll hop back in the queue.

Thanks.

Thank you. One moment for our next questions. Our next question comes from Ellie Merle from UBS. Please go ahead.

Hey, guys. Thanks so much for taking the question. Just what's your latest thinking on the Phase 2 initiation for ARO-RAGE and asthma and the gating factors to getting that started? And can you just remind us the latest time line for when we can expect to see additional data or on any of the preliminary programs in terms of the clinical studies you have ongoing? Thanks.

Yes. Thank you very much for the question. We've not given any more guidance on when we'll have additional data. We'll just see when we can complete those studies and then we will present those when we can. Regarding the Phase 2, we are developing those plans right now. And so stay tuned on more information on that. We -- there are a number of factors that we're weighing about what type of patients we'll be treating and how long we'll be treating, et cetera. And so we are still in the process of working that out right now.

Thanks.

You're welcome.

Thank you. One moment for our next question. Our next question comes from Luca Issi from RBC Capital. Please go ahead.

Great. Thanks so much for taking the question. Maybe two quick ones. Maybe, Chris or Ken, can you just expand why you think the deal announced today was struck on favorable economics. Can you just maybe help us contextualize the 15% annual interest rate and maybe how you negotiated that? And then maybe on FCS, Bruce, I appreciate you have a differentiated approach here. You're including both genetically as well as clinically confirmed patients with PALISADE. But how should we think about payers? Is it possible that payers would at least initially restrict access to just patients that are genetically confirmed before maybe broadening also to clinically confirm? Any color there, much appreciated. Thanks so much.

Sure. So I'll start with the deal and Kim can add if he like. Look, the take home message for us on that was that we are at the point of development in this company that I think we can take on debt, broadly speaking. But it's got to be the right kind of debt. We have an awful lot to do in the coming years to build out our commercial infrastructure before we start to see substantial revenue come in. And so any kind of debt that made sense to us was going to have to be long dated. The 7-year term makes a lot of sense to us. It gives us plenty of room to bridge. I talked about this bridge to plozasiran, SHTG market. I think that could be in the 2027 or so time frame. And so the 7-year term gets us deep into that, that's comfortable for us. There's also really attractive risk sharing components here. There's not a coupon here that we need to be paying on a regular basis. We'll be paying this if and only if certain external funds come in, and so it does not put constraints on us that would have been problematic. And so this, to us, feels like a very comfortable and appropriate structure. Ken, do you have anything else you want to add on that?

No, I just wanted to say that it is non-dilutive. So we like that aspect of it. And the cost of capital is reasonable given what our cost of equity capital would be.

Yes. Yes. Actually, let me underline that. I think that's a great point. When we look at what we can be achieving over the coming years, the cost of equity capital at this point feels quite expensive, and this is a very different bad proposition for us. Bruce?

Yes. Luca, you asked a very good question. The interesting thing about the way PALISADE was constructed is that if you didn't know the genetics on any of these patients, they'd all look the same. So what we really have here is we have a group of patients that happen to have a narrow set of genetics that characterize them as familial chylomicronemia syndrome or FCS. And then we have a group of patients that basically look the same, but happen to have different genetic makeup. But clinically, they're the same. And that's what's interesting about this. So my expectation is that it will really probably come down to what the package insert says. And of course, we don't know that at this point. But I think that the payers will go along with the package insert. And assuming that we get approved and assuming that the agency labels us for the patients that were studied, we would expect that the payers will go along that patients that match our entry criteria, if you will, I think, will be covered. But that will, of course, be payer to payer. But it feels like overall, as one of the physicians -- one of the investigators said to me, the patients look the same, whether they have the genetics or not, they're still the same problem I have in my clinic of patients with very high triglycerides at risk for pancreatitis and many of them having pancreatitis, recurrent pancreatitis and dangerous pancreatitis. So from the physician perspective, the patients are very much the same. And that's -- these are adult patients mind you. But there's pretty good reason to think that the payers will go along with the package insert here.

Got it. Thanks so much.

Thank you. One moment for our next questions. Our next question comes from Edward Tenthoff from PSC. Please go ahead.

Great. Thank you very much. And congrats on all the progress. Just a little bit more on plozasiran and with respect to what needs to be done for the NDA filing, where are you guys in the process? And how are things progressing on the CMC side? What are the big steps that still need to be done? Thanks.

Let's see, well, I mean we're busily writing. We will have our pre-NDA meeting with the FDA, and that will give us more insight into whether there's anything special they would like us to do that we're not already doing. CMC is moving along as well. So I mean, we're just in the presubmission phase, I guess, Ted, I don't know how to give you more than that at this point, but we're deep in it.

Fair. And just remind me, the goal is to follow by year-end?

Yes, that's been the guidance so far.

Thank you. And then a follow-up question, if I may, just on the muscle program. What should we be expecting for in terms of future data in terms of readouts from your muscle programs? Thanks.

Yes. So we've not given any guidance on that. These are still early-ish programs. We are treating patients. We'll see how fast we can treat. We'll see how fast we can generate data that is interpretable. So in other words, don't expect to have a drip, drip of data of onesie-twosie's patients, we need to put them together that would be hopeful to investors once we have it. So I don't -- I would not expect data this year. And so we'll see next year when we could have something we just -- we don't know the answer to that at this point. Do you have anything to add on that, James?

No, I think...

Great. Thank you...

Right on timing. Suffice it to say that the readouts, I think, will be substantially the same as what others have shown in terms of DMPK, knockdown, splice correction, tissue concentrations, that sort of thing.

Great. Looking forward to all that. Thanks.

Thank you. One moment for our next question. Our next question comes from Jason Gerberry from Bank of America. Please go ahead.

Hey, guys, thanks for taking my questions. My first is just on the facility you announced this evening. So is the right way to think about it? I mean you have a business model where you have this unpredictable flow of milestone in the door, so to speak. So this gives you like the flexibility to draw from the facility. But once those milestone payments come in, you can retire or repay and avoid the 15% cost, but it just kind of gives you operational flexibility at that point one. And then the second question is just on ARO-TSLP [ph] I'm wondering, this mechanism, I guess, would seem somewhat redundant with ARO-RAGE. And so just curious I imagine some investors may read through to this impact to your confidence or shouldn't read across your confidence in ARO-RAGE. Just in general, what's your hypothesis around ARO-TSLP differentiating from biologic approaches? Thanks.

So let me give the short answer on TSLP, and I'll hand it over to James to give more insight on that. But the reason that we were interested in TSLP, to be totally honest, was not necessarily to have a monomer of TSLP, but we thought it could be a very interesting part of a dimer. As you know, we've been developing our ability to deliver dimers to various tissues. And so we did it for that reason. And so it may be part of dimer at some point, we're still exploring that. But that was the primary reason. I don't -- we were not planning on bringing that in as a monomer necessarily.

I think that's right. We were not planning on bringing the ARO-TSLP program forward by itself. And then mechanistically, I mean, RAGE, if you look at the cascade, inflammatory cascade, RAGE sits upstream of TSLP, but there's -- in terms of the disease indications at least for asthma that you could go after and they're very similar.

And regarding the facility, yes, I'm sure it gives us flexibility. But really, it's a piece of this bridge that we're talking about. We need to bring in enough capital to allow us to continue to build over the next few years, while we're waiting to hopefully address the SHTG market with plozasiran, that I think we'll be -- we'll bring with a substantial revenue. And this is just one of those pieces. It's not the only piece. We still expect to do business development deals. Some of those may be partially used to pay out facility, but a good chunk of it may not be, we may just be using that for operational purposes. So think of it that way, that it's one of many ways that we -- or one of many tools that we expect to use to build that bridge.

Got it. Thanks a lot.

Thank you. One moment for our next question. Our next question comes from Mayank Mamtani from B. Riley Financial. Please go ahead.

Hey, guys. Madison Owen [ph] for Mayank. Thank you for taking our questions. So a couple of quick ones from me. Is there anything you're closely monitoring within the neuro muscle landscape that may influence your development plans for ARO-DM1 and DUX4, especially kind of on the regulatory front? And then secondly, regarding the dimers, is there, I guess, time line to when something like that could be in the clinic? And is there an indication or target where you think this is better suited than others? Thank you.

James, do you want to address the muscular question.

Yes, sure. I mean I don't know that there's any specific one item from a regulatory standpoint or neuromuscular developments that we're following. Suffice it to say that we follow all of the other programs that are out there very closely and use the data that come out in the literature and from our competitors to guide our own programs.

Yes. Look, our position there, from my perspective, is a real pleasure to be totally honest, you know, between HBV and AAT and so many others, we are the first ones to blaze the trail. And so there are certain advantages to be first, but there are certain vulnerabilities as well. And so we get to learn from competitors' interactions with regulatory agencies, et cetera. And so look, our job is to be best-in-class. Presumably, we'll have a road map that's sort of laid out for us. And our job is just to have better drugs. We are hopeful that we can have those. Regarding the dimers, we haven't given any real guidance on dimers other than during the cardiometabolic day we talked about or what I expect will be our first dimer in the clinic. The PCSK9, APOC3 dimer, we're excited about that. That will not be in the clinic this year, but I would expect that to be in the clinic next year. We have not talked about where else we are going with dimers in the near term. As you can imagine, the lower-hanging fruit with dimers, of course, is delivery to hepatocytes. And so I would expect those to be first. And then as our technologies mature, we can start to think about that type of strategy for other tissue types.

Got it. Thank you. And if I could squeeze in to the -- your adipose tissue targeting. Is there a time line on that? Could you remind us on that time line?

Well, so tune into our webinar on August 14, you'll hear our first adipose target that we're going after, and we expect that to be -- we expect to file a CTA for that this year. We have not given guidance on what those are yet, but you'll hear at least that one next week, I guess.

Got it. Congrats on the progress, guys.

Thank you.

Thank you. One moment for our next question. Our next question comes from Mani Foroohar from Leerink Partners. Please go ahead.

Hi. Good afternoon, everyone. This is CJ Yeh on for Mani. My question is on the credit facility with Sixth Street. I understand there's no scheduled amortization payments, but could you give a little detail on what proportion of future upfront payments, milestones or royalties from partnerships or Cosme [ph] have to go towards repaying the loan? That would be appreciated.

Sure. Yes, I can take that. So it depends on which particular asset it is. This is a very custom structure that we went through. And so we kind of bucketed different assets, and each of those has different payback economics. So the philosophy here is that we wanted the flexibility to spread out repayment of this over time. And we also didn't want to have too much of a cash outlay obligation unless we were going to have a significant cash inflow with the corresponding with what you're talking about with potential upfront payments from new deals or milestone payments or royalties from existing deals. So there's various different levels for different assets.

Okay. And some are zero?

There will be some transactions where we aren't required to pay any portion of that 60.

That's right. And we pre-negotiated the carve-outs for a handful of things that we think are likely over the coming years.

Got it. Would you be able to disclose whether these tend to be more like front loaded or back loaded in terms like the proportion of those future collections that would have to go to repaying the loan?

No, we're not. We're not giving more guidance on that at this point. But we will file a redacted version of the contract at some point. But at this point, we're just disclosing what was in the press release.

Okay, sounds good. Thanks so much for taking your question.

Welcome.

Thank you. One moment for our next question. Our next question comes from Brendan Smith from TD Cowen. Please go ahead.

Hi, guys. Thanks for taking the questions. Just a quick one for me. Kind of given this latest financing, can you give us a sense of how you're thinking about additional partnerships this year? Should we expect you'll announce a commercialization partner sometime in 2024? Or is that maybe a next year at this point? And then just really quickly, I wanted to ask if you're still planning to release Phase 1 data with that ARO CFB this year and kind of just how you're thinking about next steps and potential indications for that one? Thanks.

James, do you want to talk about...

Sure. We should be in a position to release data from the CFB program later this year. And then the primary additional indications that we're looking at, of course, the study starts in healthy volunteers, but we will also be looking at ARO CFB in patients with IgA nephropathy in the study.

Sorry, what was the first question?

Timing on partnerships?

That's easy. I can't predict timing on partnerships. We are -- as one can imagine, we have a lot going on. And so we are actively speaking with companies all the time, who knows how fast those go, who knows, that's our timing. So look, these are priorities for us, but I can't give you a timing.

Thank you. One moment for our next question. Our next question comes from William Pickering from Bernstein. Please go ahead.

Hi, good afternoon. Thank you so much for taking my question. I noticed there was about a $50 million sequential increase in the R&D this quarter. Could you just give a bit more color on what's in there and how would you expect the R&D line for the next few quarters to compare to that number this quarter? Thank you.

So the increase in R&D, it's been increasing all year as we move these assets further into later stages, and you will expect those to continue to increase into next year. We are going through our budgeting process right now, and we will provide additional guidance at our next earnings call to give you more information on that.

Thank you.

Thank you. I am showing no further questions at this time. I will turn it back over to Chris Anzalone for closing remarks.

Thank you, everyone, for joining us today, and I hope you have an enjoyable rest of your summer.