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, there will be an opportunity to ask questions. I will now hand the conference call over to Vincent Anzalone, Vice President of Investor Relations for Arrowhead.

Please go ahead Vince..

Thank you, Jeff. Good afternoon, everyone. Thank you for joining us today to discuss Arrowhead's results for its Fiscal Third Quarter ended June 30, 2020. With us today from management are President and CEO Dr. Christopher Anzalone, who will provide an overview of the quarter; Dr.

Javier San Martin, Chief Medical Officer, who will discuss our clinical programs; and Ken Myszkowski, our Chief Financial Officer, who will give a review of the financials. In addition, James Hassard, our Chief Commercial Officer, and Dr. Curt Bradshaw, our Chief Scientific Officer, will be available during the Q&A session of today’s 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, including without limitation those with respect to Arrowhead's goals, plans, and strategies are forward-looking statements.

These include statements regarding our expectations around the development, safety and efficacy of our drug candidates, projected cash runway, and expected future development and commercialization activities. These statements represent management's current expectations and are inherently uncertain. Thus, actual results may differ materially.

Arrowhead disclaims any intent and undertakes no duty to update any of the forward-looking statements discussed on today's call.

You should refer to the discussions under Risk Factors in Arrowhead's annual report on Form 10-K and the company’s subsequent quarterly reports on Form 10-Q for additional matters to be considered in this regard, including risks and other considerations that could cause actual results to vary from the presently expected results expressed in today’s call.

With that said, I'll 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. We’ve already made a lot of progress this year, notwithstanding, the challenges that COVID-19 has presented to the world broadly and in particular to those of us developing new medicines.

We took decisive action and placed a voluntary pause on new patient screening enrollment in some of our clinical studies in order to limit the risk to participants. We take very seriously our obligation to protect the health safety -- the health and safety of our employees, business partners, and patients that participate in our studies.

That was the right thing to do. The good news is that we don’t believe any of our development programs were affected in a material way. That is a testament to the Arrowhead drive toward innovation, speed, and precision. We find a way forward, even when the way is not clear.

This is a hallmark of the Arrowhead culture and something that I am very proud of.

Even though COVID still presents some uncertainty, we are confident that 2020 can continue to be a highly productive last part of the year as we work to; one, expand our pipeline; two, make progress and provide data readouts on multiple clinical programs; and, three, gain clinical proof-of-concept for our first extra-hepatic candidates.

So, what have we done and what are our plans in order to achieve these three important goals? Let’s answer that by reviewing some key programs. I’ll start by speaking broadly about our discovery stage programs. The partnership we signed with Janssen in 2018 included three potential new products against targets to be selected by Janssen.

While we can’t disclose the targets, the specific stage, or report data on these potential product candidates, we can say that we have made good progress on all three. We previously talked about ARO-JNJ1, because the first target was selected early on in the partnership and work began soon after.

We are now at a sufficiently advanced stage for the other two potential product candidates to add them to our pipeline and designate them ARO-JNJ2 and ARO-JNJ3. The partnership with Janssen has been very productive, including for ARO-HBV, now called JNJ-3989, which continues to progress rapidly in multiple Phase 2b studies being conducted by Janssen.

Staying with earlier stage development, let’s move on to our pre-clinical programs that utilize our TRiMTM platform, targeting the pulmonary space. Our second program after ARO-ENaC, is ARO-LUNG2 designed to treat COPD by inhibiting an undisclosed target in pulmonary epithelia.

We previously announced that it had officially been nominated as a candidate and moved from preclinical into Pre-IND stage. We have continued to make good progress on the IND-enabling studies and are on track to potentially file a CTA for ARO-LUNG2 at the end of this year.

It has been our goal to gain clinical proof-of-concept and then move into a rapid pipeline expansion phase for the pulmonary platform. We think we are just on the cusp of that phase now. To that end, we continue to work in parallel on multiple additional targets in the pulmonary space.

We think the lung is a target rich environment with multiple opportunities for asthma, COPD, Idiopathic Pulmonary Fibrosis, and other diseases that are not adequately treated. We have also made good progress on several potential candidates designed to treat the novel coronavirus that causes COVID-19.

This is the first time we have disclosed that we are pursuing multiple different therapeutics at the same time, and I think it’s important. This is a difficult virus and we believe the best way forward is to address multiple strategies.

One is to try to close the front door, if you will, by knocking down a receptor that the virus uses to gain entry into cells; a second is a direct antiviral approach that targets the viral mRNA; and a third is to pursue anti-inflammatory pathways.

We are pursuing all of these in parallel and believe this broad, holistic strategy gives us multiple shots on goal and a more complete approach to a poorly-understood virus. Given our experience in the lung and our work in HBV, I believe we are well-positioned to play a role in addressing COVID-19 and possibly future corona virus outbreaks.

With ARO-ENAC, ARO-LUNG2, our suite of COVID-19 programs, and the additional potential candidates that are progressing rapidly, we are confident in our belief that the emerging lung pipeline can be an engine that drives substantial value in the near to mid-term. What we have done, and continue to do, in the liver, we now seek to do in the lung.

Now moving on to our clinical pipeline, I will start with ARO-AAT, our Phase 2/3 candidate against a rare genetic liver disease associated with alpha-1 antitrypsin deficiency. We have fully enrolled, dosed, and collected six-month repeat biopsies for the first cohort of the open-label 2002 study.

Biopsies are now being analyzed and we plan to present data before the end of the year. This is important progress and an important readout. It will be the first data for a therapeutic targeted at alpha-1 liver disease and it will be an important step in understanding what happens at the hepatocyte level after patients are treated.

We will be looking at many measures of alpha-1 liver disease, but most focused on the change from baselines in Z-AAT monomer. That is a direct measure of the drug’s ability to inhibit production of the faulty mutant protein. We have a high level of confidence in our ability to show improvement there.

We will also be assessing other measures that will likely require longer drug exposure to show a treatment effect. That includes Z-AAT polymer content and inflammation. We don’t believe that six months of therapy is enough time to see changes, but we are the first company to investigate this disease in humans, so we really don’t know what to expect.

Remember, that in the Phase 2/3 SEQUOIA study, patients will receive around two years of treatment. If we see signs of improvement at earlier time points than expected, that would be a very exciting result and could cause us to consider working with regulators to change the parameters of the study. I will now talk about our cardiometabolic programs.

Let’s start with AMG 890, the candidate we licensed to Amgen targeting Lp(a) for the treatment of cardiovascular disease. We announced last week that Amgen started a Phase 2 study and that this triggered a $20m milestone payment.

These represent important steps forward for the AMG 890 program, and support Arrowhead’s strategy of utilizing our platform and expertise in RNAi therapeutics to build a valuable pipeline of both wholly-owned and partnered drug candidates.

Amgen has extensive expertise in developing and commercializing innovative cardiovascular medicines and we are excited to see the program continue to advance.

Our two wholly-owned cardiometabolic candidates, ARO-APOC3 and ARO-ANG3, are both progressing rapidly towards value-inflection points, including multiple data readouts this year and advancement into the next stages of clinical development. The second half of 2020 is going to be an important time for both programs.

Both candidates are in Phase 1/2 studies, and together have enrolled nearly 200 healthy volunteers and patients. Both studies include single and multiple-dose assessments. And, both have various cohorts with specific patient populations.

This accelerated first-in-human study design yields data on safety and tolerability, dose response, duration of effect, and how different types of patients respond to therapy. It allows us to give data readouts from both programs at two or three conferences over the next few months.

It also gives us enough actionable information about each candidate to engage regulators and discuss the next stages of clinical development, up to and including potential registrational studies. We have already been communicating with the FDA on ARO-APOC3 and our plan is beginning to take shape.

We will have similar discussions on ARO-ANG3 and also engage with the European authorities to gain clarity on various study design characteristics, endpoints and target patient populations.

Importantly both candidates provide a high level of optionality on which patient populations and disease characteristics to focus on and how to stage the clinical studies to assess the candidate's utility.

For example for ARO-APOC3 there are potential patient populations that range from ultra-rare genetically defined, such as FCS in which patients have triglycerides in the thousands of milligrams per deciliter to extremely high prevalent disease such as patients with mildly elevated triglycerides above 150 milligrams per deciliter.

There are also various levels in between these extremes that each have their own characteristics and would require a different clinical design with respect to size of study duration of treatment and acceptable endpoints. Taken together this represents a very large market opportunity. In the U.S.

alone they are estimated to be approximately 1 million adults with triglycerides greater than 1000 milligrams per deciliter, more than 3 million adults with triglycerides between 501,000 and more than 41 million with triglycerides between 200 and 500.

Of course not all of these patients will be potential candidates for therapy, but thinking of ARO-APOC3 solely as an orphan indication drug candidate is missing the larger breadth of opportunities ahead.

This type of opportunity also exists for ARO-ANG3 and patients with mixed dyslipidemias -- specifically, triglycerides, LDL-C, and other measures of cardiovascular and metabolic disease. I don’t think investors fully appreciate the size of the potential commercial opportunities for both ARO-APOC3 and ARO-ANG3.

This is an exciting time for these programs as we are beginning to see potential paths to commercialization.

We will be talking about these paths and timelines in the future, which should provide a level of detail for investors to properly assess how significant the opportunity is to help very large populations of patients that could benefit from new treatment options.

We have also made good progress on ARO-HSD, in development to treat alcohol and non-alcohol related liver disease. We began dosing in a Phase 1/2 study in March. We have since completed all healthy volunteer cohorts and have activated the cohorts that enroll patients with NASH or suspected NASH.

The target, HSD17B13, is not a secreted protein so we will be collecting liver biopsies to measure target engagement. This program experienced a short pause in screening and enrollment due to COVID-19, but similar to other programs, we don’t think this had a material affect on our anticipated timelines.

As long as patient screening and enrollment continue to move forward as planned, we should be generating data through the end of 2020 and be in position to present in the first half of 2021. Lastly, I want to mention ARO-ENaC, our first inhaled RNAi candidate to target the pulmonary epithelium.

We anticipate dosing to start this month in our Phase 1/2 study in healthy volunteers and in patients with Cystic Fibrosis. The candidate is designed to reduce expression of the epithelial sodium channel, or ENaC, in the lungs to help rehydrate CF-related dehydrated mucus and potentially help improve mucociliary clearance.

As we discussed on our ENaC webinar last week, there has been great progress in new therapies to treat CF over the last decade, but significant unmet need still exists. We estimate that there are approximately 14,000 patients in the U.S.

alone that are either not eligible for the most advanced therapies because of their specific genotype or have been shown in clinical trials to be non-responders or insufficient responders. This is a lot of patients who still suffer from CF and are in need alternative treatments.

We think ENaC may be that alternative and importantly, the mechanism of action should, theoretically, be genotype agnostic. This is an exciting program and we hope to generate data through the rest of 2020 that may enable us to have a data readout in the first half of 2021.

Our preclinical data has been highly promising, and we are eager to see the translation of animal data to humans in our new pulmonary TRiMTM platform. With that overview, I’d now like to turn the call over to Dr. Javier San Martin.

Javier?.

Thank you Chris and good afternoon to everybody on the call. I want to highlight a few of our clinical programs and some key progress we made since our last conference call. Just like all biotech companies, COVID had an effect on some of our programs, but I'm very pleased to say that it appears this has been generally minor.

In fact some programs experienced little to not delay in our anticipated timeline. We continue to monitor the situation closely to ensure that study participants are not being exposed to additional risk, while at the same time moving forward rapidly when it is safe to do so.

Even in the challenging environment of the last several months, I’m proud that Arrowhead’s clinical development team has executed at a very high level. Let’s start with ARO-AAT, our second-generation investigational RNAi therapeutic being developed as a treatment for the rare genetic liver disease associated with alpha-1 antitrypsin deficiency.

As we announced last quarter, we voluntarily put the SEQUOIA Phase 2/3 study and the 2002 open-label study on a temporary pause for new screening and enrollment due to concerns around COVID-19. Both studies are now back up and running and open to new patient screening and enrollment.

The pause caused a delay of approximately eight weeks for SEQUOIA and for the second cohort in 2002, after which, sites began to reopen and resume patient screening. The first cohort in 2002 was already fully enrolled and, importantly, we did not experience any concerning protocol deviations for those already on study.

Let’s talk more about the 2002 open-label study, because we plan to have a data readout this year. To review, the study is designed to enroll approximately 12 participants in two sequential cohorts. Between the two cohorts, biopsy data will be assessed at baseline and after six months, 12 months, 18 months, and 24 months of treatment with ARO-AAT.

As I mentioned, the first cohort, which is four patients, was already fully enrolled prior to COVID-19 and patients have continued on study as planned. All doses were administered and the six-month repeat biopsies have all been collected.

Samples are being processed as we speak, and our plan is to have analysis completed in time to submit a late-breaker abstract to the AASLD Liver Meeting later this year. This is a potentially important readout for the program and for the field, because it is the first view of what happens inside the liver in alpha-1 patients after receiving therapy.

We will be assessing reduction is the Z-AAT monomer, which we would expect based on plasma data from our Phase 1 healthy volunteer study. The Phase 1 data demonstrated that ARO-AAT treatment led to reductions in serum AAT levels down to below the level of quantitation with a multi-month duration of effect.

This suggests that we maybe achieving near complete suppression of the liver production of the mutant Z-AAT protein. At this time, no other therapies have shown this type of result using any modality.

We will also be looking at whether the accumulated Z-AAT polymer can start to decrease after six months, which we are not expecting but would be pleasantly surprised to see. In addition, we will look at changes in inflammation and in various histologic parameters.

Again, we wouldn’t expect to see these measures change after only six months of treatment, but it would be a very exciting result if we were to see improvements this quickly. Let’s now move to our cardiometabolic pipeline.

I will start with AMG 890, an investigational siRNA therapeutic designed to lower lipoprotein (a), or LP little a, for the treatment of cardiovascular disease, which is licensed to Amgen. As Chris mentioned, Amgen recently started a Phase 2 study, which we are very excited about.

The study is a double-blind, randomized, placebo-controlled Phase 2 study to evaluate efficacy, safety, and tolerability of AMG 890 in approximately 240 subjects with elevated Lp(a). The primary endpoint is the percent change in Lp(a) from baseline to week 36.

Key secondary endpoints include the percent change in Lp(a) from baseline to week 48, and percent change in LDL-C and Apolipoprotein (NYSE:B) from baseline to weeks 36 and 48. Moving to our two wholly-owned cardiometabolic candidates, ARO-APOC3 and ARO-ANG3.

Let’s begin with ARO-APOC3, our candidate targeting apolipoprotein C3, being developed as a potential treatment for patients with hypertriglyceridemia. We continue to be very impressed and encouraged by results from the ongoing Phase 1/2 clinical study called AROAPOC31001.

I will talk about the study design and progress and then discuss where and when we expect to present data. AROAPOC31001 is a Phase 1/2 single and multiple dose study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamic effects of ARO-APOC3.

There is a single-dose and multiple-dose portion of the study in adult healthy volunteers and a multiple-dose portion of the study in patients with hypertriglyceridemia. The study reached full planned enrollment of 80 subjects and we subsequently expanded the study to assess a total of up to 112 subjects. As of today, 100 subjects have been treated.

The first data from the single-dose healthy volunteer portion was presented at American Heart Association in 2019. We have been accepted to present additional data at the European Society of Cardiology meeting, the National Lipid Association meeting, and we may potentially have additional data at the American Heart, pending abstract acceptance.

Between these three meetings in the second half of 2020, we plan to have multiple dose and follow up data in both healthy volunteers and patient cohorts. Together these represent a rather full dataset and should be a good view on the safety and activity of ARO-APOC3.

Data from the ARO-APOC3 P1/2 study have indicated very potent triglyceride reduction, frankly more potent than anything I’ve seen before. Because of this, we are exploring potential designs for the next stages of clinical development to study the drug in multiple patient populations that may benefit from triglyceride reduction.

We have been engaging with regulators on that topic and hope to provide some clarity later this year. We are hopeful that during the first half of 2021 we will be able to initiate a Phase 3 study in smaller populations and a Phase 2b study in larger populations.

Our other wholly-owned cardiometabolic candidate is ARO-ANG3, targeting angiopoietin like protein 3, or ANGPTL3, and is being developed as a potential treatment for patients with mixed dyslipidemia. The current clinical study is called AROANG1001.

It is a Phase 1/2 single and multiple dose study to evaluate safety, tolerability, pharmacokinetic, and pharmacodynamic effects. Both the healthy volunteer and patient portions of this study have reached full planned enrollment of 93 subjects.

Similar to ARO-APOC3, we continue to be very encouraged by the clinical data and plan to present at ESC and NLA, and hope to also present at American Heart Association, pending abstract acceptance. We are working on a clinical development plan and will be engaging with regulators shortly to discuss the plan.

Our hope is to start a Phase 2b study in the first half of 2021 in an appropriate patient population that may benefit from a lowering of both triglycerides and LDL-Cholesterol. This may affect multiple cardiovascular risk factors simultaneously, which is potentially very exciting. I will now briefly touch on progress in our earlier stage pipeline.

ARO-HSD is our investigational candidate for the potential treatment of alcohol and/or non-alcohol related liver disease. The genetic validation is strong for inhibiting the target HSD17B13 in NASH cirrhosis, and alcoholic hepatitis and cirrhosis patients.

This is an exciting program for us as it is the first candidate against this novel target using any modality to enter clinical studies.

We are conducting a Phase 1/2 single and multiple dose-escalating study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamic effects of ARO-HSD in normal healthy volunteers as well as in patients with NASH or suspected NASH.

Additional exploratory objectives include assessment of various measures of drug activity using liver biopsy. We have completed enrollment and dosing of the healthy volunteer portion of the study and we have initiated the multiple-dose portion of the study.

There was a short delay in this study due to COVID-19, but it did not materially affect our anticipated timelines. We anticipate that initial data should be available to present in 2021. Our two other early stage programs, ARO-HIF2 and ARO-ENaC, are also our first candidates targeting tissues outside the liver.

ARO-HIF2 is designed to treat renal cell carcinoma, and we are currently screening patients to begin a Phase 1b study. ARO-ENaC, designed to treat cystic fibrosis, is scheduled to begin dosing in a Phase 1/2 study this month. We hosted a webinar last week to talk about the target, the preclinical data, and the plan for the candidate.

The webinar also featured outside cystic fibrosis expert Dr. Marcus Mall. It was full of good information about the program and I highly recommend you watch a replay if you didn’t see it live. It is still available on the Events and Presentations page on our website. I will now turn the call over to Ken Myszkowski, Arrowhead’s, Chief Financial Officer.

Ken?.

Thank you, Javier. As we reported today, our net loss for the quarter ended June 30, 2020 was $13.6 million or $0.13 per share based on 101.8 million fully diluted weighted average shares outstanding.

This compares with net income of $20.3 million or $0.21 per share based on $98.9 million fully diluted weighted average shares outstanding for the quarter ended June 30, 2019. Revenue for the quarter ended June 30, 2020 was $27.4 million compared to $42.7 million for the quarter ended June 30, 2019.

Revenue in the current period relates to the recognition of a portion of the upfront payments and milestones received from our license and collaboration agreements with Janssen, as we continue to work toward completing our performance obligation of managing the current Phase 1/2 HBV clinical trial.

Revenue from the Janssen agreement is recognized based on our estimate of the proportion of effort expended toward fulfilling our performance obligations, primarily, overseeing the completion of the current Phase 1/2 HBV clinical trial. We expect the remaining $26.3 million of deferred revenue to be recognized in this calendar year.

In addition, current period revenue also included the $20 million milestone payment we accrued due to Amgen initiating their Phase 2 clinical trial for AMG 890. Revenue in the prior period related to the recognition of a portion of the upfront payments and milestones received from our license and collaboration agreements with Janssen.

Total operating expenses for the quarter ended June 30, 2020 were $43.3 million compared to $24.1 million for the quarter ended June 30, 2019. This increase is primarily due to increased non-cash stock compensation expense.

Stock compensation expense has increased because the valuation of new stock option and restricted stock awards granted has increased with the growth in our stock price. Additionally, stock compensation expense increased due to the timing of achievement of certain performance-based awards in each period.

The increase in our total operating expenses was also driven by the increased clinical trial costs as our pipeline of clinical candidates has increased and increased personnel costs in both R&D and G&A as our headcount continues to grow.

Net cash used by operating activities during the quarter ended June 30, 2020 was $33.4 million, compared with net cash provided by operating activities of $10.5 million during the quarter ended June 30, 2019. The increase in cash used by operating expenses during the quarter is consistent with the increase in our cash operating expenses.

The cash provided by operating activities in the prior period was driven by the receipt of a $25 million milestone payment from Janssen due to the initiation of the triple combination cohort in the HBV Phase 1/2 clinical study. We estimate our near-term cash burn to average $30 million to $35 million per quarter. Turning to our balance sheet.

Our cash and investments totaled $464.6 million at June 30, 2020 compared to $302.9 million at September 30, 2019. The increase in our cash and investments is primarily due to the December 2019 equity financing we completed, which generated $250.5 million in net cash proceeds for the company.

Our common shares outstanding at June 30, 2020 were $102.3 million. With that brief overview, I will now turn the call back to Chris..

one, platform development and expansion into new extra-hepatic tissues, such as lung, tumor, muscle and other cell types; two, early discovery as evidenced by several COVID-related programs, ARO-JNJ1, 2 and 3 and other undisclosed programs; three early development such as ARO-LUNG2, ARO-HIF2, ARO-ENaC and ARO-HSD; and four, emerging mid to later stage developments such as ARO-AAT, ARO-APOC3, ARO-ANG3, and partner programs JNJ-3989 and AMG 890.

This is a very large pipeline with enormous opportunity for a company of only 200 people that currently only burns between $30 million to $35 million per quarter and has a market cap less than $5 billion. This again speaks to Arrowhead culture of finding a way forward and not allowing bureaucracy, or legacy processes to block innovation.

It is also a testament to our commitment to capital efficiency and being good responsible stewards of the capital that we have been entrusted with. Even as we continue to grow, these attributes will be important parts of the Arrowhead culture. The rest of 2020 is going to be very busy.

We anticipate multiple data readouts, important clarity on the future paths and time lines for some of our programs and new announcements about previously undisclosed targets and candidates. Our existing programs continue to advance and the reach of our technology platform continues to expand. This is a very exciting place to be.

Thanks again for joining us today. I would now like to open the call to your questions.

Operator?.

[Operator Instructions] Our first question from the line of Alethia Young. Your line is now open..

Hi. Thank you. This is Alberto on for Alethia from Cantor Fitzgerald. Congratulations on the quarter. And I have two quick questions. So first is the HIF2 program, which we started in December, if I recall correctly we were just curious about how you're thinking regarding updating the street on that.

Would you do an interim readout later this year? Or are you waiting for all patients to be treated?.

Yes. Thanks for that question. We're not planning an interim readout this year. I'll tell you that has progressed a bit more slowly than we had hoped. As you mentioned, we filed that IND in December. And frankly, I expected us to be dosing that by June. COVID really slowed us down on that.

We are -- because it's a biopsy study, we are focused not entirely, but largely in academic institutions. And so that's just taking a long time to get contracting done to start that study. We are hopeful that we'll start to dose that shortly. And look it's our anticipation to report that once that study is complete.

And so by the end of this year, it is unlikely maybe in the middle of next year, but we'll see how that goes. We'll give you better guidance once we start dosing that..

Thank you for that.

And then just on the HSD assets, do you have a view on potential differentiation that different RNAi approaches can have in liver disease? And along those is still your goal to find a partner for this program? Or are you considering going at it alone? And if so or either way, I guess, what gives you the confidence to continue investing in this given the challenge in this stage?.

Sorry, which program AHD did you say?.

Yes..

Yes. Okay. Yes. So look, so I'll tell you our initial and differentiator is our speed. We are the first, as I understand it. I think we're the first company of any modality to bring an HSD based therapeutic to the clinic. And so that's on the understatement. So that's first. Second, look I expect that to be a good therapeutic.

I expect that to be a potent and I expect good deep knockdown. And so I think, we've got a very good shot of having something that's going to knock down that that protein. So here are the challenges. Challenge one is that, it's not as accretive protein.

And so at least right now, there's no secretive biomarkers and so it's going to have to be at least in the near term a biopsy study. We are okay with that. And as you know the current study enables that and I think that we can enroll that no problem, but that's going to be a bit of a challenge.

The second challenge is that is that the mechanisms of these targets are not well understood. The genetic validation is clear. It appears that knocking HSD down should be very beneficial for NASH and even more beneficial potentially for alcohol-related hepatitis, but the biology of that still is a bit lagging. And so we'll see where that goes.

We are excited about the program. At some point, could that be something that we target, sure, but at least right now it's -- we are happy to push that forward as it is. We can handle it as it is. NASH is a complicated space, but at least in this -- at this early stage of this program we're happy to continue to move forward.

And then we'll just be opportunistic. Should a good deal at some point happen we're happy to listen, but right now we're happy to continue to treat patients..

Thanks again for that. And congratulations..

Sure. Thank you..

Next question from the line of Salveen Richter of Golden Sachs. Your line is now open..

Great. Thank you for taking the question.

What levels of the palmer reduction do you expect to see in the 6-month at liver biopsies? And what do you think is necessary in order to you guys approach the FDA on changing the primary endpoint or shortening the Phase II/III trial? And then I have a follow-up on the ENaC program?.

Sure. So I'm glad you asked that question because I want to be clear on this. We don't expect changes in polymer content after just six months.

We do expect substantial monomer reduction and that would be reflective of our expected activity of this drug as we saw in the healthy volunteer study although those are plasma levels, we saw good deep production as Javier mentioned and so we expect good reduction in minor at this point. Polymer is a hard -- is a different story.

Look it's not clear how that metabolized. One of the good news, bad news of being pioneers here is that yes, we're first, but bad news is we're first. And so there's a lot of things that we have to learn here. One of the things is how this polymer is metabolized.

It could be that we are relying on the hepatocytes to turn over to decrease that polymer because we don't know it's possible that metabolism this is very slow if they can metabolize at all. So our take on message is look we do expect good deep [ph] production of monomer.

We expect virtually no or no reduction in polymer and probably no changes in inflammation at this early point at six months. I think there's a better likelihood that we would see some of those changes starting after maybe a year of therapy..

Got it. That's helpful.

And then on the ARO-ENaC program, what dose level would you penetrate the tissue? And how do you see your asset differentiated from the competitors in the space?.

Javier?.

So this is how while dosing patients healthy volunteers first and then patients and this is coming from the experiments in the preclinical lab. When you see the total dose that we will dose patients approximately 25% of that dose is expected to be delivered to the land and that is an efficiency-related to the nebulization process.

So that's an estimation but right now, we don't know for sure, but that's what we've seen in the preclinical work and expected to see in the clinical. However, in clinic it's very difficult to know of course.

And what's the second?.

Yes. And regarding competition look I think, we sit favorably from a competitive standpoint, it's a well-validated target. People have gone after ENaC for small molecules in the past, but have generally not been able to reduce it enough in the lung but spare in the kidneys. We are confident that we -- that we will not reduce in the kidneys.

We've done exogenous studies in animals to suggest that we don't expect reduction in kidneys. And so look I think we're -- I think that we are virtually alone at least with this target right now in cystic fibrosis.

There have been some antisense programs, but I think that those will likely have the same issues that other antisense programs have had which has been related task..

Great. Thank you..

Next question is from the line of Ted Tenthoff from Piper Sandler. Your line is now open..

Great. Thank you very much for taking my question. I wanted to ask a little bit more in terms of COVID program. With so much going on in the space what are the benefits of RNAi mechanism potentially for COVID? And can you tell us a little bit more about sort of maybe how that clinical program looks? Thanks..

Sure. There's not much we can tell you on that because we're still early there and we're still really exploring a lot of things. But as I mentioned in the prepared remarks, there are three broad areas that we are interrogating simultaneously. One, is knocking out or knocking down receptors in the lung that enable the virus to get in.

That biology is reasonably clear or as clear as it can be in this -- for this virus. So we will be going after that. I think we have a role to play there. Look we've got a clinic ready lung program. We've been leaders in HBV. We were the first ones to show a good potent antiviral effect in hepatitis B.

And so I think we're well positioned to play here, so we feel good about that. Second is direct antivirals. Again, we show with HBV that we're pretty good at that and I think the opportunity here is not just to look at the current coronavirus but to think of this more broadly.

If one were to expect there will be coronavirus outbreaks in the future and it passes is prevalent, that's probably a good assumption. We would hope to find some well-conserved regions among known coronaviruses that we can knock down and have antiviral effects. We are interrogating that right now. We think we can play in that space.

And then third with anti-inflammatory, this judge well with our other lung programs. We think that there are that there are good indications for anti-inflammatories. And so we're developing that right now and we think that that might play a role in a therapeutic for coronavirus..

Cool. Sounds interesting. I look forward to hearing more..

Yes, thanks Ted..

Next question from the line of Luca Issi of RBC Capital. Your line is now open..

Terrific. Thanks for taking my question. Luca Issi from RBC Capital. Two questions. Maybe one for Javier on ARO-AAT and maybe one bigger picture question for you Chris.

So, on ARO-AAT, it sounds to me that you're saying that there is somewhat of a time lag between the reduction in the monomer versus the reduction in the polymer, however, when I see the preclinical data published at JCI, I don't see there much of a lag there as actually the peers to the monomer and the polymer just reduce concurrently there.

So, just curious about what am I missing there? That's the first question. And the second question Chris on the strategy. You obviously have a very impressive pipeline at this point.

Can you just maybe dichotomize the world for us between assets that you feel you have generated enough data that you would consider a partnership now versus assets that you want to further derisk before entertaining any type of partnership? Thank you..

All Right. So, the first part of the question related to how the preclinical work correlates to the clinical. I think the first difference is that we have a look at very early standpoint in the preclinical work. It's more like on the longer term.

So, I don't think we have a way to see the dynamic an additional reduction of different components of the metaprotein in the liver. So, that's one component that I think we need to understand.

The second I think we are now getting more and more information from the natural history study that we've done and we're collaborating with others, this is clearly a dynamic progress chronic diseases and it happens in different stages as we are learning.

So, the main problem is the production of this abnormal mis-fold protein that case accumulating delivery initially as monomers, and then eventually get organized as polymers as the time goes back become this global. This is the reason why then patients develop inflammation and this continue develop fibrosis and finish with a stage liver disease.

So we see this as a very dynamic process at something that can be addressed immediately which is inhibit production of this mutant protein and that over time will be associated with the decrease in the monomers in the liver and the polymers. And eventually that will reduce the insole the costing inflammation the progression of the liver disease.

So, that how our thinking -- and actually the 2002 study likely will answer this question more precisely because we're looking at biopsies at four time points post initiation of therapy six, 12, 18, and 24 months.

So, probably we'll be able to map out how these dynamic sequence of events happen and how we can intervene by inhibiting the insole and allowing the lever to heal..

Thanks. So, with regard to your more strategic question that is a key question for our strategy. As you know we've been really focused on building this large pipeline and not slowing down. We've heard them say it before look I think we're going to have 10 clinical programs pretty soon and I think we doubled that to 20 in the next few years.

And so what that gives us is that is an awful lot of currency to do some partnerships because look we are frankly, no company I don't think nearly our size even double our size even triple our size could commercialize all those [Indiscernible].

So, we have we've got the ability to go through that and find clusters of assets that we can commercialize ourselves to bring us to that next level of growth. And then partner others out. With respect to which ones we can partner right now.

So if you look at the current clinical programs where we have data AAT, APOC3 and ANG3, I'd be willing to suggest that we have enough data to partner any of those. Are the data entered have been quite good on all of them. AAT as Javier showed, in healthy volunteers, we were showing decreasing levels of plasma down below the level of quantitation.

And we'll have biopsy data shortly to see what that looks like intrahepatically. But I think that, we have already -- from my perspective we have already achieved clinical proof-of-concept there that we are doing what we expect to do in a well-tolerated manner.

APOC3, we're seeing 95% reduction in triglycerides, in patients also lowering -- a lowering of LDL also with these patients, so far has been well tolerated. I think those data have been generated. We think we've dosed 100 patients so far or unseen patients and healthy volunteers.

I think, there's an update there to -- its part of that should we want to. ARO-ANG3, we're seeing 85% reduction of triglycerides 40%, reduction of LDL and non-LDL receptor mediate fashion, well-tolerated. The same thing that we dosed 93 patients, I guess so far, and they're well tolerated and been active.

And so I think that, we have hurdled that far as well. So the point is I think those are all partnerable now. And I think it's now upon us to continue to move these and other programs forward. And then to figure out which ones, and at what time, we're going to want to partner..

Superb. Thank you. Thank you again and congrats on the progress..

Thank you..

Next question is from the line of Maurice Raycroft of Jefferies. Your line is open..

Hi everyone. And congrats on the progress and thanks for taking my questions. First question was on ARO-AAT. Just wondering if you validated inflammatory biomarker assay you had for that program..

We haven't validated ourselves. But it is a very, validated way to look at inflammation. We likely go to do an early look at the same way we look at in the preclinical work which is quantify forces of inflammation by portal areas. So the first reason inflammation will be very standard and well-described quantifiable.

And that you can really -- is reliable and you can compare baseline to post-baseline..

Got it.

And wondering for that program too if you can provide any details on the baseline characteristics of the patients that you've got in the open-label study, and how do those baseline characteristics compared to some of the patients that you've enrolled in the pivotal Phase II III?.

Yes. Well, so I don't have any detail right now. We can follow-up, if you want offline. So I don't recall exactly. But we can get back to you later on..

Of course, the goal there was to be treating similar patients. And so what we see in the open-label study, our anticipation is that that will read on what is likely happening within the blinded study. So the question is, are they different to one of patients? The answer is they really shouldn't be..

Because the inclusion criteria is similar and so, I was about to repeat that but essentially the age groups is 18 to 50 or 55. Of course they have ARO-AMG1, and higher than 65. So inclusion criteria are very, very similar. So we expect that this result will be applicable to understand what happened on the larger Phase II/III study..

Got it. And I think in the prepared remarks you said, you've been having discussions with regulators for APOC3 and ANG3. Can you provide more clarity on when you're going to finalize plans and disclose some more of the details from your discussions with the regulators in the U.S.

and the EU?.

Yes. I don't think we're ready to provide guidance on that yet. We did have interactions with the FDA over the summer. And so we're still formulating our strategy there..

Got it. Okay. Thanks for taking my questions..

You're welcome..

And the next question from the line of Madhu Kumar. Your line is open..

Hi everyone. Thanks for taking my questions. So my first one is on, AAT, so kind of following up on, Luca's question so you can imagine there are two schools of thought around clinical benefit in the alpha-1 antitrypsin liver disease, related to either a reversal of polymer and globular formation versus liver cell turnover.

So based on your belief that six months will not be enough for AAT knockdown to translate to clinical benefit.

Do you pay your health in the liver turnover school of thought? Or do you think you're spread between the two? Or how do you think about it in terms of, which realm do you think you'll get benefit in terms of the alpha-1 antitrypsin liver disease?.

I'll let to Javier answer this. I don't think we know. We -- look we know that we can -- that polymer should be reduced the liver -- or we have had a site turnover. That's what we think we know. And that's about it.

I don't think we have a good idea about metabolism but beyond that Javier?.

Yes. I think as I said before, this is one of those liver diseases that start with an insole such as hepatitis, such as NASH, and as you know, when you remove insole more likely liver improved and that been shown in many different circumstances like this. So this is a treatment that will remove the insole that is new.

And with time the remodel will get rid of the polymers and globulus and that will hopefully allow the cell -- the hepatocyte to heal and prevent the complication and the progression of the disease to stage cirrhosis. So that's how we're thinking about this..

Interesting. So you all don't think the preclinical data suggests there's a back reaction that occurs where polymer or monomer converts back to a states you don't have a nascent AAT form.

You don't think there's a bad reaction that happens?.

A bad reaction meaning unpolymerization if you will?.

Exactly..

Yes. I just told that we just don't know..

Okay. And then on ARO-ENaC, so you obviously have gone into the long and that's really exciting as an opportunity.

What data do you need to see from ARO-ENaC to kind of more broadly pursue the lung including the COPD indication either, kind of, pulmonary facility on directed lung indications like what do you need to see? Maybe one benefit or do you need many more proximal to that that will give you confidence that you can hit targets in the lung?.

Yes. So this is a Phase 1 study, of course, but we're doing two assessments in patients, which is FEV1 as spirometry well published and then LCI or lung clearance index. And we think that that is particularly sensitive methodology to assess early changes. And somehow probably related or correlated to the MCC or mucociliary clearance.

So we did the webinar about a week ago and there is -- there are a number of details in that webinar that you may want or to if you haven't seen it you can take a little bit, because this is in our web page. But I think the LCI we have enough patients in this Phase 1 study to likely see the difference in LCI or changes.

And also if you put all the patients together because LCI will be done in a subset of patients with an FEV1 greater than 70%, because the methodology is precise in that kind of patient population.

We're doing FEV1 in all patients -- all three cohorts of patients with cystic fibrosis, so we think that we are in a good situation to look at change from baseline and perhaps see an initial difference assuming a significant change.

So we do believe that we will have proof-of-concept data at least the study is designed to achieve that goal in the Phase 1..

Okay. So then following that logic, the lung clearance index as a measure for each individual like it's a surrogate measure for ENaC inhibition.

That's the kind of key parameter for you to broadly pursue the lung?.

Well, no it will give us information that there is a pharmacodynamic effect not necessarily only the inhibition that will tell us that there is an improvement in respiratory ventilation and homogeneity, which is related to MCC and eventually clinical benefit.

So it's absolutely a pharmacodynamic, it's not just the level of -- we won't be able to measure that, of course, clinically with this target, because you have to have a lung biopsy. So it's going to be really a pharmacodynamic result and the study is designed to be able to see those changes definitely with LCI and then hopefully also with FEV1..

Got you. Awesome. So then stepping back and thinking I know previously we've all talked about this idea of kind of the fancy term I guess the bispecific RNAi hitting multiple targets at the same time.

Like where is your progress on that? And where are you thinking about pursuing that? Considering you've got this whole kind of basket of cardiometabolic targets where I think a not unreasonable expectation would be, well, why not go after multiple targets at the same time.

So how are you thinking about that? What do you need to do to kind of really pursue that in gusto?.

Yes.

It's a -- that's a -- it’s a very smart question I think and it's something we think about a lot, because you're right the cardiometabolic we've got the data we've seen so far with APOC and ANG are so intriguing that if you would combine those that's even more intriguing, but you can also imagine that within the lung there are several targets that that could be very interesting by combining those.

You can also look and think of this in NASH as well. There are multiple pathways need address if you could go after what we call it bispecific or dimer. So yes, we are on the same page with the great possibility of the bispecific or dimers. We're still working on that.

There are challenges there associated with potency and such and we're still working there. We can -- I think we can see it, but we're not there yet. So stay tuned, we'll have additional updates as we can approach the clinic with one of these, but it's still early-ish days on this concept..

Okay. Great. Thanks very much guys..

Next question from the line of Mani Foroohar of SVB Leerink..

Hi. Thank you very much. So I don't think I can match the elegance of Madhu's question around law of mass action and ARO-AAT. So thinking about it and perhaps some more well we'll say a little bit more of a craft way going back up 10,000 feet.

When you think about the time horizon to see a polymer benefit and clearly probably six months it will be some longer period versus the time horizon to see ecology improvement should we expect a polymer benefit to lead histology improvement by a year two years some very long period of time? Or should it be very quick one striking after the other given what we know about from the preclinical data, data and natural history? And then I have one quick follow-up on a one finance question..

Well, we really don't know the goodness I think we're going to answer the questions as we go along. And the Phase 2/3 study states the post baseline biopsy is right now at two years post position of the study.

So we're taking right now a relatively conservative approach to do the post base and biopsy two years after initiation therapy to allow enough time to be able to see what we've seen in the preclinical work.

Now exactly how that will look like? I don't know, but 2002 as a sequence of biopsy a different time point different patient population might help us to fine-tune the time frame of changes monomer polymer globulus and the consequence lever that much associated with that. So more to come..

Yes. And just to give -- to reiterate our time and expectations here. As we mentioned we are processing the -- analyzing the biopsies right now is our anticipation that we'll have data in time to submit a labor or abstract to AASLD. My hope is that we get accepted there.

And so I think we can have we can have more educated conversations about what we're seeing and what we could be seeing in the future sometime around that. So it's just too early to tell. Look our preclinical of data were interesting. We saw improvements in all of these measures.

We just don't know how the kinetics of those are going to translate from roads to humans..

That's really helpful. So -- and on the more boring finance question you spoke a little bit about the impact of stock-based compensation, et cetera. So, clearly your stock has been -- has been volatile in the last couple of years, but it's not surprising given the amount of data that you produced. And milestones that you hit, et cetera.

So when we think about modeling stock-based comp, we think about it in terms of total shares issued as opposed to dollars, which takes that impact out a little bit. Should we expect shares issued or options issued in a notional sense to be about flat versus this year, up materially down slightly.

How should we think about that as we model that going forward on a stock issuance perspective as opposed to trying to use a dollar amount for pretty volatile equity security like yours?.

Yes. I would expect that to be pretty flat on a stock basis. Again to use your differentiation right? You're not on a dollar basis, but on a number of share basis..

Great. Thanks really helpful. Thanks guys..

You’re welcome..

Thank you. Next question from the line of Mayank Mamtani of B. Riley. Your line is open..

Congrats team on the progress. Just no more ARO-AAT question, I just want to drill down on the cardiometabolic portfolio. Starting with the 890 the Amgen compound could you just comment on what data they have presented or they will present? And in context of another agent that is already an outcome study.

Just kind of anything that is out there you can talk about the data that they have so far?.

Right. Yes. So as far as I know they've not presented any data. I'm not in any jeopardy of appealing you something I shouldn't tell you because I don't -- because they haven't told us anything. My expectation is that they would they would present some data by the end of this year at what venue with time I don't know.

And what you're going to see I don't know. We are optimistic that they should be good data because look we thought that was a really good trigger. We expect it to be post and we expect it to lead to good deep and durable LP(a) knockdown not now. But that was speculation based on the animal models.

So we'll be looking forward to seeing that side by side with you..

Okay. And then on APOC3, I'm sensing there's a little bit of change relative to -- I think what you were talking about earlier with Ag May 3 be positioned for the broader population, but it seems like you want to do APOC3 also in the broader hypertriglyceridemia phase.

So just curious is it more to do with how the landscape there is evolving? Or with the regulatory dialogue you're having in real time? Like just or is it like the data that we'll get to see more at NLA and other conferences? Could you just maybe give more color there?.

Yes. Thanks for asking that question because I think it's important. Part of this may be that we could have messaged this better, but another part is that our thinking really has evolved. We've talked a lot about addressing smaller populations because that looked like a near-term as commercialization.

And so we've always thought that that's how we approached this asset. We get into these smaller populations relatively quickly and then expand the label by essentially walking down the triglyceride levels.

And so you think of this just in broad terms of say about 1000 and then say, 500 to 1000 and then say, 200 to 500 as we talked about in the prepared remarks. I think Vascepa, I think their first tranche, if you will was to was 500 to 1000 I think was their first group that got approved on.

In any event so our -- so A, we are trying to message is a bit better that we see this as a whole as a spectrum of patients that we can address from a small market to larger market. So I don't want to talk about that a bit more.

But also as I mentioned I think our I think that our thinking has changed here a bit in part because the data has just been so good as we look at the safety profile and as we look at the depth of triglyceride knock down seen. And frankly the increase in HDL we have not talked very much about but we think still could be important.

As we look at all that we just add ourselves. We've got something here that really should be product to larger populations. And so and so again our goal here is to maybe start with small populations because we can get to that commercial opportunity most rapidly, but then to expand this out.

And look I think this is at least as large a market opportunity at ANG3 maybe larger, but at least as large as that given the hyper patients that we can address. Look the numbers we talked about 41 million adults are estimated to have triglyceride between 200 and 500 in the U.S. alone.

That's a pretty big swath for us to potentially treat some set of that..

Okay. Great.

And then on the ANG3, just can you confirm if you still have some part level disease patient subjecting enrolled there and you'll still -- are you still planning to do on some of these subjects?.

Yes. Yes. So it's -- Javier couldn't understand what you said. So you're talking about the various patient cohorts and are we still enrolling..

So ANG3 is completely enrolled. So we complete that ADI where to look at the data as it comes. So no we complete that study together. And we're planning on the first interaction with the regulatory agency here with the FDA to plan the Phase 2b study. To start hopefully at the beginning of this first half of 2021.

So the study is complete in terms of enrollment. And very soon we have completed 113 days final data for all patients all subjects and patients in the study..

And we've talked about liver panels for all these patients. And what has always excited us about this pathway in this target has been the possibility of lowering LDL in non-LDR receptor mediated Fashion and lower the triglycerides. That's been the core of our interest.

Now if you go a bit beyond that you look at the possibility of insulin sensitivity and liver fat the data that we and others have seen in animal models have been interesting.

And so that was nice to have but not a need to have if you will and we were looking forward to seeing whether or not we see that translate into humans given the data from antisense candidates we are not expecting to see that translate. We're not expecting to see changes in or improvement in insulin sensitivity.

We're not expecting to see changes in liver fat. Now that we have some data here. So maybe we're wrong there, but just given what we've seen from any sense we're not expecting to see that. We think that's fine, because it's the triglyceride and LDL that makes a really powerful asset.

But we do have those cohorts enrolled and so we'll find that out and we'll be reporting on those as well..

Excellent. Look forward to those updates. Thanks for the e-mail questions..

You're welcome..

Thank you. And the last question from Robert [Indiscernible] of [Indiscernible]. Sir, your line is open..

Hi. Thank you so much for taking my questions. First off, congrats on your progress and continued growth. I only have a couple of quick matters as you cover my other questions.

I'm sorry, if I missed it, but did SEQUOIA Part B start dosing at?.

No it has not..

Okay. And I know that you mentioned before that Arrowhead is comfortable in rolling out its own orphan drugs.

Would you consider partnering or selling any of your orphan drugs, especially ENaC or AAT or are your orphan drugs off the table when it comes to these kinds of deals?.

No, I would say that off the table. We're -- so don't think of us as an organ indication company, but also don't think of us as holding on to everything that we have in those spaces.

I think that if you fast forward five or 10 years from now, I think you'll see a portfolio of drugs some there small indications some of larger indications some could be very large indication. So no there's nothing about smaller indications that would indicate that we are absolutely doubled onto those come hell or high water..

Okay. That's all I have. Thank you so much..

All right. Thank you..

Thank you. And there are no further questions at this time. I would like to turn it over to Christopher Anzalone for closing remarks..

Thanks everyone for joining our call today. I hope everyone's stays safe and enjoy the rest of your summer to the extent that you can..

Thank you. And that concludes today's conference. Thank you everyone for participating. You may now all disconnect..