Arrowhead (ARWR): Collaborations with Amgen for Two Cardiovascular Programs

Grant Zeng, CFA

NASDAQ:ARWR

Earlier today (Sept. 29, 2016), Arrowhead (ARWR) announced two license and collaboration agreements with Amgen to develop and commercialize two cardiovascular programs based on Arrowhead’s RNAi platform.

These programs will utilize Arrowhead’s proprietary subcutaneous RNAi delivery technology.

Pursuant to one agreement, Amgen receives a worldwide, exclusive license to Arrowhead’s novel, RNAi ARC-LPA program, which is designed to reduce production of apolipoprotein A, a key component of lipoprotein(a), which has been genetically linked with increased risk of cardiovascular diseases, independent of cholesterol and LDL levels. ARC-LPA is Arrowhead’s first drug candidate to use a subcutaneously administered delivery construct. Elevated lipoprotein(a), or Lp(a), is widely viewed as a key risk factor for cardiovascular diseases, including coronary artery disease, atherosclerosis, thrombosis and stroke.

Under the second agreement, Amgen receives an option to a worldwide, exclusive license for a RNAi therapy for an undisclosed genetically validated cardiovascular target.

In both agreements, Amgen will be wholly responsible for clinical development and commercialization.

In connection with the two collaborations, Arrowhead will receive $35 million in upfront payments; $21.5 million in the form of an equity investment by Amgen in Arrowhead common stock (about 3 million shares); and up to $617 million in option payments, and development, regulatory and sales milestone payments. Arrowhead is further eligible to receive single digit royalties for sales of products against the undisclosed target and up to low double digit royalties for sales of products under the ARC-LPA agreement.

Our Takeaways from the Deal

We welcome this deal and think it’s positive to Arrowhead in the following aspects:

First, the collaborations immediately boost the company’s balance sheet with the $56.5 million upfront payment. In the long run, milestone payment and royalty will further enhance the company’s cash position in a non-dilutive way.

As of June 30, 2016, Arrowhead has $44.5 million in cash and investment.

On August 12, Arrowhead closed a private offering with a select group of investors including Orbimed, RA Capital Management, Perceptive Advisors, RTW Investments and certain other institutional investors. Gross proceeds were $45 million. Approximately 7.63 million shares of common stock were issued at a price of $5.90 per share.

Current cash plus the new proceeds can support the company’s operations into calendar 2018 according to our financial model.

Second, the deal with Amgen further validates Arrowhead’s RNAi technology and its clinical application.

Third, with a great partner Amgen, this deal could serve as a signal of renewed interest in RNAi technology and similar deal could be signed in the future for Arrowhead.

We will provide further updates on this deal for investors when they are available.

Phase II of ARC-AAT Initiated

In early September 2016, Arrowhead initiated a Phase II clinical study of ARC-AAT for the treatment of liver disease associated with alpha-1 antitrypsin deficiency (AATD). The study is designed to evaluate safety and tolerability and determine the effect of multiple doses of ARC-AAT on levels of circulating and intrahepatic alpha-1 antitrypsin as evidenced by changes in liver biopsy in patients with AATD.

The ARC-AAT Phase II study (ARCAAT2001) is a multi-center, open-label, multiple dose-escalation study of ARC-AAT in patients with AATD. In total, the study will consist of at least 8 and a maximum of 12 participants. Two dose levels, 4 mg/kg and 6 mg/kg, will be evaluated in two separate cohorts. All subjects will receive a pre-dose biopsy, seven doses of ARC-AAT (once every 28 days), and a post-dose biopsy completed at Day 183. The study will be conducted at multiple centers in Canada, Ireland, and Sweden. The Company may add additional centers in other countries.

In late February 2015, Arrowhead initiated a Phase I clinical trial of ARC-AAT for the treatment of liver disease associated with Alpha-1 Antitrypsin Deficiency (AATD) in Australia.

The Phase I trial is a multi-center, randomized, placebo-controlled, double-blind, single dose-escalation study to evaluate the safety, tolerability, pharmacokinetics of ARC-AAT and the effect on circulating alpha-1 antitrypsin (AAT) levels. The study plans to enroll in dose cohorts of six participants each, with participants randomized at a ratio of 2:1 (active:placebo) to receive a single intravenous injection of either ARC-AAT or placebo (normal saline).

The study will consist of two parts, with Part A planned to be conducted in healthy volunteers and Part B planned to be conducted in patients with PiZZ genotypeAATD. In Part A, dose escalation will proceed until the achievement of certain target knockdown parameters. That target is at least 30% reduction of serum AAT levels in 3 subjects or greater than 60% reduction in a single subject. When these AAT knockdown parameters are achieved, dose escalation in healthy volunteers (Part A) is planned to stop and dosing in patients with AATD (Part B) is planned to begin at the highest dose level used in Part A and then dose escalation will proceed. Participants will be evaluated for 28 days following dosing with additional follow-up every 2 weeks until AAT levels return to baseline.

The company has completed enrollment in Part A of the study in healthy volunteers and will report top-line data from Part A later in the year.

ARC-AAT has been granted orphan drug designation (ODD) by both the FDA and the European Medicines Agency.

Arrowhead has signed an agreement with the Alpha-1 Project (TAP), a subsidiary of the Alpha-1Foundation.

Under the terms of the agreement, TAP will partially fund the development of ARC-AAT. In addition to the funding, TAP will make its scientific advisors available to Arrowhead, assist with patient recruitment for clinical trials thanks to the Alpha-1 Foundation Patient Research Registry, and engage in other collaborative efforts that support the development of ARC-AAT.

ARC-AAT is Arrowhead s second clinical candidate, which further de-risks its pipeline. In the absence of specific therapy other than liver transplant for AATD associated liver disease, we believe RNAi holds great potential.

For a free copy of the full research report, please email scrinvestors@zacks.com with ARWR as the subject.

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