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ARWR: ARO-AAT Ph 2/3 Detailed, Could Serve as FDA Pivotal Study. Continued Broad-Based Pipeline Progress

By Brian Marckx, CFA



Pipeline Highlights: AAT Ph2/3 Trial Design, AAT and HBV EASL Presentations, Dosing Starts in ARO-ANG3/APOC3 Ph 1s
Arrowhead Pharmaceuticals (ARWR) continues to make rapid progress across most of their pipeline with the last few months including several substantive highlights. This includes presentations at the EASL International Liver Congress in April from preclinical long-term data from the previous-generation AAT as well as interim results of JNJ-3989 (ARO-HBV) among 40 patients at 24+ weeks follow-up in their ongoing Phase 1/2 study.

The JNJ-3989 Phase 1/2 study (chronic hepatitis B) continues and was recently expanded to include a triple combination cohort (cohort 12), which along with JNJ-3989, will include additional undisclosed agents chosen by Janssen. Management indicated that this triple combination cohort could generate data relatively quickly – which will be one of several near-term development-related announcements that we anticipate. In April ARWR earned a $25M milestone from Janssen related to the initiation of dosing of this new triple combination cohort. Another $25M is expected once Janssen commences the Phase 2 study.

Meanwhile, in April ARWR received U.S. regulatory approval to commence a Phase 2/3 study of ARO-AAT in alpha-1 antitrypsin deficiency that could serve as a pivotal FDA registration study. The study (“SEQUOIA”), the design of which we detail below, could represent the first U.S. pivotal study of ARWR’s TRiM platform. Given that this program potentially represents the most near-term commercialization opportunity, we will be particularly eager to hear related updates.

Dosing commenced in the Phase 1 studies of ARO-ANG3 (targeting ANGPTL3) and ARO-APOC3 (targeting apoC-III), the company’s two newest clinical candidates which target cardio metabolic diseases. ARWR continues to expect to report data (safety, tolerability, PK and initial duration of effect) from both of these studies later this year. Management believes these programs have the potential to move fairly rapidly as well – and, depending on the data, could provide optionality in terms of addressing both orphan (which could be the initial pursuit) as well as more prevalent diseases (which could be a secondary pursuit). If all goes well, ARWR thinks that pivotal studies for these compounds could begin as soon as next year.

It’s not yet mid-year and ARWR has already made significant progress across the majority of their pipeline. And based on management’s comments, they expect no slowing down. They now expect to have seven TRiM candidates either in or about to start clinical trials, including five of which they own outright. Moreover, they are targeting the filing of two to three new clinical trial applications per year, targeting a new cell type with their TRiM technology every 18 months and have 10 TRiM candidates in clinical trials by the end of next year.

AAT EASL Presentation
In April ARWR presented long-term preclinical data from their prior generation AAT compound at the EASL International Liver Congress. Results demonstrated that adult PiZ mice treated with ARC-AAT showed sustained RNAi reduction of the mutant Z-AAT protein. After 33 weeks of treatment with ARC-AAT, the PiZ mice showed substantial reversal of disease phenotype including deeply reduced monomeric Z-AAT protein in the liver, reduced polymeric Z-AAT in the liver, up to 98% plasma Z-ATT reduction from baseline and restoration of normal endoplasmic reticulum. While this was a prior generation, we think this lends further support for potential efficacy of AAT in the treatment of alpha-1 antitrypsin deficiency.

View Exhibit I

JNJ-3989 EASL Presentation
Also at EASL ILC ARWR presented interim results of JNJ-3989 (ARO-HBV) among 40 patients at 24+ weeks follow-up in their ongoing AROHBV1001 study. As a reminder, this is a Phase 1/2 study to evaluate the safety, tolerability, and pharmacokinetic effects of single-ascending doses (SAD) of ARO-HBV in healthy adult volunteers, and to evaluate the safety, tolerability, and pharmacodynamic effects of multiple-ascending doses (MAD) of ARO-HBV in patients with chronic HBV.

Results showed JNJ-3989 rapidly reduced hepatitis B surface antigen (HBsAg) in patients that had 24 weeks or more HBsAg assay results. The reductions were to thresholds potentially associated with improved chance of HBsAg clearance after just three doses.

Specifically, all 40 patients achieved > 1.0 log10 IU/mL HBsAg reduction, while 88% (35/40) achieved HBsAg < 100 IU/mL. In terms of safety, there were no drug-related serious adverse events reported while there were 17 mild adverse events at the injection site (such as tenderness and bruising).

View Exhibit II

ARO-AAT Phase 2/3 Trial Design
In April ARWR received IND approval to proceed with a Phase 2/3 study of ARO-AAT in alpha-1 antitrypsin deficiency. Management laid out details of the trial design on the fiscal Q2 call and noted that they believe it could potentially serve as a pivotal FDA registration study. Along with the Phase 2/3 study, called SEQUOIA, a separate open label study, called ARO-AAT 2002, will be conducted in parallel.

The purpose of ARO-AAT 2002, which ARWR anticipates commencing in Q3 of this year (i.e. slightly after SEQUOIA begins), is to essentially have insight into patient response and safety without having to unblind SEQUOIA (and therefore be susceptible to potential bias) – this, they hope, will provide them with ongoing and current data for planning purposes (it should also, we think, provide investors with potential proxy insight into safety and response of SEQUOIA).

SEQUOIA is a multiple dose, multicenter (hope to have up to 40 sites WW), placebo-controlled, adaptive Phase 2/3 study to evaluate the safety, efficacy, and tolerability of ARO-AAT administered subcutaneously to patients with alpha-1 antitrypsin deficiency. Patient, treating physician and Arrowhead will be blinded. SEQUOIA has two parts, A and B. The goal of (multi-dose) Part A is to select a single dose to be used in the two-arm, placebo-controlled Part B portion. The following, taken from ARWR’s Q2 2019 conference call, describes the SEQUOIA study and below that, the ARO-AAT 2002 study;

◦ The primary objective of Part A is to select a single dose level for use in Part B based on a combined evaluation of safety and pharmacodynamic dose response in each Part A cohort using change from baseline in soluble liver Z-AAT and serum AAT levels as pharmacodynamic metrics.
◦ Participants in Part A will require a pre-dose biopsy and those who meet the inclusion criteria will be randomized to receive ARO-AAT or placebo on days 1, 29, 113, and then every 84 days thereafter.
◦ There are three cohorts each using a different dose level (25mg, 100mg and 200mg). All three cohorts will be randomized in parallel.
◦ Once 36 subjects, 12 in each cohort have completed a Day-113 biopsy, the Part A analysis to select a single dose for Part B will occur.
◦ Enrollment will continue into all cohorts until the Part B dose is chosen.

◦ The primary objective for Part B is to evaluate efficacy as assessed by the proportion of ARO-AAT patients relative to placebo achieving a two-point improvement on a histological grading scale of alpha-1 antitrypsin deficiency associated liver disease and no worsening of liver fibrosis on end-of-study biopsy.
◦ Patients enrolled during Part A will continue on study and roll over to the Part B dose level or continue to receive placebo.
◦ These patients are intended to receive a minimum of six Part B doses and a minimum of nine doses overall.
◦ Remaining patients needed to achieve a total enrollment of 120 will be randomized to the selected Part B dose level or placebo and will receive doses on days 1, 29 and then every three months thereafter for a total of nine doses.

- ARO-AAT 2002 study (conducted in parallel to SEQUOIA)
◦ Open label, multi-dose, Phase 2 study to assess changes in a novel histological activity scale in response to ARO-AAT over time in patients with alpha-1 antitrypsin deficiency associated liver disease.
     • Primary objective is to evaluate effective ARO-AAT on a histologic liver disease activity scale will be assessed at 24 weeks for cohort one and week 48 for cohort two.
     • Multiple secondary ‘exploratory objectives’ will also be assessed.
     • Expected to include 12 subjects in two sequential cohorts
          ∙ Cohort one consists of four patients and cohort two consists of eight patients.
               ◦ All eligible patients will require a pre-dose biopsy completed as part of the study. Patients that had been enrolled are expected to receive a minimum of three doses of ARO-AAT in cohort one and five doses in cohort two with repeat biopsies approximately one month after the third or fifth dose, respectively.
               ◦ Doses will be administered on days 129, 113 and approximately every 84 days thereafter. Patients who complete cohorts one or two may elect to participate in an extension cohort which would include an additional four doses, again given quarterly followed by repeat liver biopsy.

Q2 2019 Financial Results
Total revenue for the period ending March 31, 2019 was $48.2M (versus our $43.1M estimate), representing recognition of another portion of the $197.8M transaction price of the Janssen / JJDC collaboration agreement, which closed in late October 2018. To-date, approximately $82.6M of this total has been recognized as revenue. In April (i.e. subsequent to fiscal Q2 quarter-end), ARWR earned a $25M milestone from Janssen related to the initiation of dosing of the aforementioned (new) triple combination cohort in the JNJ-3989 Phase 1/2 study and another $25M will be earned when Janssen begins the Phase 2 portion.

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

In return, Janssen receives worldwide exclusive license to ARO-HBV and an option to collaborate with ARWR on up to three additional RNAi therapeutics for new targets (to be selected by Janssen). Janssen will be solely responsible for development and commercialization beyond ARWR’s ongoing Phase 1/2 study. The other optional targets will leverage ARWR’s TRIM platform technology but will not include any of the company’s current pipeline. For these optioned targets, Janssen will fund initial discovery and preclinical work by ARWR and will take over each program following an IND filing by ARWR.

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

Q2 operating expenses were $26.1M (versus our $28.0M estimate), which includes $20.8M ($22.2M E) of R&D expense and $5.3M ($5.8M E) in salary/G&A expense. We continue to expect OpEx, and in particular R&D expense, to increase as ARWR’s various studies progress to later stages and as new clinical candidates enter the pipeline.

EPS was $0.24, compared to our and average consensus estimates of $0.17 and $0.19, respectively.

ARWR exited fiscal Q2 with $286M in cash and investments. The company used $19.6M of cash for operations in Q2 but, excluding changes in working capital, the company generated $28.2M of cash from operations in the same period. During the first half of fiscal 2019 ARWR generated $148.7M (or $43.9M ex-changes in working capital) of cash from operations.

We cover ARWR with a $30/share price target. See link for free access to our updated report on the company.

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