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 over to Vince Anzalone, Vice President of Investor Relations for Arrowhead. Please go ahead, Vince.

Thank you, Steven. Good afternoon, and thank you for joining us today to discuss Arrowhead’s results for its Fiscal 2023 Third Quarter Ended June 30, 2023. With us today from management are President and CEO, Dr. Chris Anzalone, who will provide an overview of the quarter; Dr. Javier San Martin, our Chief Medical Officer, who will provide an update on our mid and later-stage clinical pipeline; Dr. James Hamilton, our Chief of Discovery and Translational Medicine, who will provide an update on our earlier stage programs; and Ken Myszkowski, our Chief Financial Officer, who will give a review of the financials. In addition, Tracy Oliver, our Chief Commercial Officer and Patrick O’Brien, our Chief Operating Officer and General Counsel, will both 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. Our industry is built on promise. Sometimes this promise can be stunning and carry with it the possibility of saving the lives of some and drastically improving life for others. Arrowhead's mission is to bring important new medicines to the people who need them and save lives and alleviate suffering where we can. While this is our guiding principle and focusing on this promise has given us purpose and the motivation to, I believe, innovate at industry-leading levels and operate at speeds not seen before, it is not the only important focus for us. Another is risk. Our industry swings in a sea of risk. We recognize that in order to succeed, we need to appreciate the great promise in front of us, but focus on all the risks between the idea and the medicine ultimately given to a patient. We are idealists, but we are not naive. One of our most important jobs is to mitigate and decrease risk where we can. We have made great progress on this broad front since our last call, and this is how I would like to frame our discussion today. Let's begin with pulmonary. We believe we've taken an important step towards further de-risking the entire pulmonary franchise with the first chronic GLP toxicology results starting to come in. For ARO-MMP7, the no AEL or no observed adverse effect level, was the highest dose we tested in our chronic rat study. In other words, even at the highest dose tested, we are not seeing anything that is deemed adverse. The highest dose represents what we believe would be substantially greater exposure than would be applied to humans. We are waiting for final rat data from the ARO-RAGE chronic GLP tox…

Thank you, Chris, and good afternoon, everyone. The design, planning and preparation of the late-stage studies of our cardiometabolic candidates, ARO-APOC3 and ARO-ANG3 is well underway, while making good progress towards our goal of conducting multiple and a Phase 2 meeting with regulators this year and initiated multiple Phase 3 studies late this year and early next year. We also intend to present final Phase 2 data at the American Higher Association meeting in November, pending attractant for multiple studies for both ARO-APOC3 and ARO-ANG3. Let's take a moment to review the various studies we have concluded, and then I will provide our current thinking around the Phase 3 studies, may -- how the Phase 3 study may look like for each clinical indication. How we start with ARO-APOC3? Our investigational RNAi therapeutic being developed as a treatment for patients with mixed dyslipidemia, severe hypertriglyceridemia and familial chylomicronemia syndrome. ARO-APOC3 is designed to reduce production of Apolipoprotein C3 or APOC3, a component of triglyceride rich lipoproteins, including very low-density lipoproteins or VLDL and chylomicrons and a key regulator of triglyceride metabolism, knocking down thehepatic production of APOC3 by RNAi results in reduced VLDL synthesis and assembly, enhanced breakdown of triglyceride rich lipoproteins, and better clearance of VLDL andchylomicron remnants PILPL-dependent and independent pathway. We view ARO-APOC3 as having the potential to address many patients population with variously disorders that can lead to different clinical complications and [indiscernible]. Familial Chylomicronemia Syndrome or FCS is characterized by extremely high TG levels typically over 1,000 milligrams per deciliter and as high as 5,000 milligrams per deciliter, leading the high rates of acute pancreatitis that usually requires hospitalization and can be favored. Patients with FCS may also experience chronic abdominal pain, and they had to adhere to very strict diet with very low fat…

Thank you, Javier. Our pipeline of early-stage clinical candidates now includes eight programs addressing various diseases with gene expression in four tissue types, including liver, lung and now muscle and CNS. Of these eight programs, most are wholly-owned and in our core areas of focus; they are in pulmonary, ARO-RAGE, ARO-MUC5AC, ARO-MMP7, in cardiometabolic ARO-PNPLA3, in neuromuscular ARO-DUX4 and ARO-SOD1, and we also have ARO-C3 for complement-mediated diseases and HZN 457 partnered with Horizon for Gal. In addition, we have many undisclosed preclinical programs that should continue to feed our pipeline for years to come. We are increasingly looking for opportunities to focus around core areas and we are fortunate that our platform provides us with so many opportunities. Our discovery and clinical development teams continue to be highly productive and efficient. One main benefit of drug development based on a proprietary technology platform is that it allows us to apply learnings from prior programs to each new program. This makes us faster, more precise, and I believe, yields drug candidates with a higher probability of success. The TRiM platform has given us that advantage for liver-directed programs for a few years now. We believe we are now in a period where those same advantages exist for lung-directed programs and we have the potential to get there over the next couple of years for muscle and CNS. We held a very comprehensive R&D Day during the quarter, so I'm not going to review all of Arrowhead's discovery and early development programs. I'd like to focus on some important potentially derisking data from our ARO-RAGE program. ARO-RAGE is our RNAi therapeutic candidate designed to reduce expression of the receptor for advanced glycation end products for RAGE as a potential treatment for inflammatory pulmonary diseases such as asthma. We are currently conducting…

Thank you, James, and good afternoon, everyone. As we reported today our net loss for the quarter ended June 30, 2023, was $102.9 million or $0.96 per share based on 107 million fully diluted weighted average shares outstanding. This compares with a net loss of $72 million, or $0.68 per share based on 105.8 million fully diluted weighted average shares outstanding for the quarter ended June 30, 2022. Revenue for the quarter ended June 30, 2023, was $15.8 million compared to $32.4 million for the quarter ended June 30, 2022. Revenue in the current period primarily relates to our collaboration agreement with Takeda. Revenue is recognized as we complete our performance obligations, which include managing the ongoing AAT Phase 2 clinical trials for Takeda. There remains $17 million of revenue to be recognized associated with the Takeda collaboration, which we anticipate will be recognized over the next year. Total operating expenses for the quarter ended June 30, 2023, were $118.5 million compared with $105.3 million for the quarter ended June 30, 2022. The key drivers of this change were increased candidate costs, partially offset by lower stock compensation expense. The increased candidate costs were primarily due to the progression of the company's pipeline of candidates into the -- into and through clinical trials, which resulted in higher outsourced clinical trial, toxicity study and manufacturing costs. Net cash used in operating activities during the three months ended June 30, 2023, was $21.4 million compared with net cash used in operating activities of $68.9 million for the three months ended June 30, 2022. We expect our operating cash burn to be $80 million to $90 million next quarter. We expect to spend between $160 million and $180 million over the next three quarters to complete our GMP manufacturing facility and related laboratories in Verona, Wisconsin. Turning to our balance sheet. Our cash and investments totaled $494.5 million at June 30, 2023, compared to $482.3 million at September 30, 2022. The increase in our cash and investments was primarily related to the $250 million payment from the royalty -- from Royalty Pharma as well as other licensing cash inflows offset by our operating cash burn, along with continuing capital projects. Our common shares outstanding at June 30, 2023, were $107.1 million. With that brief overview, I will now turn the call back to Chris.

Thanks, Ken. We are well on our way to reaching our 2025 goal to grow our pipeline of RNAi therapeutics to a total of 20 clinical stage or marketed product from the year 2025. However, pipeline expansion is just a means to an end. The ultimate goal and the reason we continue to invest in expanding our platform, discovering new candidates, advancing our clinical programs, and streamlining the drug manufacturing process is that it allows us to get important new medicines to patients in need as quickly and efficiently as possible. Doing this will also create a sustainable business and provide a steady stream of commercial revenue, which we now have a better line of sight on and a plan that we are executing to get there. Thank you for joining us today, and I would now like to open the call to your questions. Operator?

Thank you. We will now conduct the question-and-answer session. [Operator Instructions] Our first question comes from Luca Issi of RBC Capital.

Oh, great. Thanks so much for taking my question. Just a quick one here. I'm wondering if you can comment on what was your reaction to the Roche and Alnylam's deal. I guess two questions there. Is AGT a target that you may be willing to pursue? And two, how should we think about read-through for your cardiovascular franchise? And then maybe a super quick one for Javier for severe hypertriglyceridemia. I was under the impression that you were planning a single pivotal trial with triglycerides the primary endpoint and pancreatitis as a secondary point. However, it sounds today like you're planning two separate studies, so wondering what drove that change? Thanks so much.

Sure. So, I don't know that we have really a position on the Alnylam-Roche deal, good for them. We are not working on that target. It didn't fit into where we see opportunities in the space. And I don't think it reads through to our cardiometabolic assets. I think those are really orthogonal to each other. Javier, do you want to address?

Yes. So, hi Luca, I think when we presented the clinical program for ARO-C3 at the R&D Day, I think I mentioned that we are doing two studies. The first one, which is the one that would be the primary source of registration is the SHASTA-3, which is 600 patients approximately with TG higher than 500. We will start in parallel the study SHASTA-4 in patients with higher TG levels and recent past history of pancreatitis. That study would be approximately 200 patients, and that will not be part of the initial filing, but it will be a subsequent interaction with the agency, hopefully, to give pancreatitis risk reduction in that study and eventually add that to the label. So, it was planned, but there is a sequence here. First, SHASTA-3 registration and second SHASTA-4 label expansion.

Okay. Thank you. Our next question comes from Maury Raycroft of Jefferies.

Hi congrats on the products and thanks for taking my questions. For your pulmonary platform, you've got the late-breaker title for your RAGE program at ERS next month. How much asthma patient data can we expect in this update, or will it be longer-term follow-up from this SAD and MAD healthy volunteer part of the study? And then separately, I wanted to clarify for the preclin tox studies, are those six months or 12 months? And it sounds like you're somewhat beyond where you were with ENaC on safety, can you just elaborate more on that as it relates to the preclinical and clinical data that you've got so far?

Yes. Sure. I can take the first part of the question. The data that will be presented at European Respiratory is primarily an update on the healthy volunteer SAD and MAD duration. We may have a little bit more duration data from the first patient cohort, the asthmatic patient cohort, but we won't have additional patient data at that time. And then regarding the tox studies, the -- this is the six-month rat tox study that Chris was referring to for both RAGE and MMP7..

Yes. So, we're still waiting on the nine-month monkey tox and you mentioned that it sounds like we are beyond where we were with ARO-ENaC and I think that is true. We are using substantially less material in all of these candidates in the chronic tox studies, and that appears to be bearing fruit for us.

Got it. Okay, thanks for taking my questions.

You’re welcome.

All right. Thank you. One moment for our next question. Our next question comes from Patrick Trucchio of HC Wainwright & Company.

Thanks, and good afternoon. Just a few follow-up questions. The first one is just around the ARO-RAGE chronic tox data. Can you just clarify, is this data would it be expected in the third quarter or fourth quarter of calendar 2023? And how would you expect it to differ for that, which was reported from ARO-ENaC just in terms of how are the doses for these compounds compared to ENaC in these studies specifically? And then separately, just also regarding the pulmonary programs in clinical development, there are several three programs in clinical development, at least one in preclinical development. Can you give us an idea of what targets you could include for your pulmonary platform as it expands -- and to what degree would you be looking at targets with genetic or clinical validation as you look to build out this pulmonary pipeline going forward?

I'll take the second, and Jim can take it first. I've got the easy one. The answer is we can't give you too much guidance on undisclosed targets. We are – I get your point that, of course, we will be looking at genetically validated targets and clinical validated targets, and that is always our preference. You've heard us say before, our goal here is to take as little target risk as we can. And one way to do that is to work on the most validated targets that we can. And so we will certainly be doing that. Will we expand beyond that into some targets that have less validation? Probably, but my hope is that we will -- in the near to mid-term, at least, the targets we're focusing on will be well validated. James, do you want to address the top?

Yes, sure. Hi, Patrick, thanks for the question. Regarding tox, so the doses are across the board lower for the new pulmonary programs, lower in terms of exposure. I think most importantly, less frequent. If you recall, we used a day one, two, three, every two-week dosing regimen for ENaC and then for our current programs, the dose frequency is spread out much less frequent. We're dosing either monthly or every two months in the chronic tox studies.

And if you look -- if you compare the exposure, I want to say it spans from ENaC being four times to ENaC being 20 times the amount of material compared to the various newer compounds we're working on. And that is entirely a testament to – to how much more potent these follow-on compounds are.

Great. Thank you so much.

You’re welcome.

Thank you. One moment, while we queue our next question. Next question is from Keay Nakae of Chardan.

Hi, thanks. Question about partnering specifically for the CV assets. You're going to go it alone initially with some of these Phase IIIs, but you do have an outcome study out there planned, if you see success going in alone, does that make it more or less likely that you want to partner to do an outcome study?

So, we are planning on doing the outcome study for ARO-APOC3 by ourselves. We see that as a very interesting asset and the data have been very compelling. So we are happy to take that on ourselves. It doesn't mean that we're not going to partner that at some point, geographically, potentially, who knows, but we are happy to take on the CVOT risk ourselves. And so that's our plan right now.

Okay. Thanks.

You’re welcome.

Thank you. One moment for your next question. Our next question comes from Edward Tenthoff of Piper Sandler.

Great. Thank you very much. Summer is going on and excited about the progress. As we look at the pipeline, what should we be expecting from C3? I know that we're in these patient cohorts now of these neuropathy and maybe IgA nephropathy. When could we get data from those? And what would be your ultimate view for advancing AROC3 further? Thanks.

Yes. In terms of when we should get data, we're probably looking at end of next year, so end of 2024. And what was the other part of the question?

Just how would you anticipate progressing from there?

Yes. I mean, I think it depends on what the data show us. I think there are several other examples out there of Phase III programs that are ongoing for IgA nephropathy and C3 glomerulopathy with biomarkers as primary endpoints. So, I think our late-stage programs would probably look something similar to those.

Okay. Great. Thank you.

Thank you.

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

Hey guys, thanks for taking the question. A quick one around, how you think about building the CD side of the franchise. Could you lay out what your estimation is for what is that CVOT should cost for cascade now? Presumably, given that you plan to go it alone, I would assume that you've got a reasonable budget estimate for what that might cost. And can you walk us through sort of how we should think about sort of expansion in OpEx, as you build out the infrastructure to support, what will be a larger study than you guys have ever done stand-alone before?

Sure. So we can't give you -- yes, we are putting together estimates about what that's going to cost. However, we still haven't had our end of Phase II meeting with the FDA. We are putting together our proposal and so, I expect that we'll be speaking with them this year. Until we have that conversation, until we have feedback from them, it's going to be very difficult for us to give you good numbers, just because, we want better clarity. We will be happy to give you some estimates on some guidance, once we have those discussions. But at this point, it's a bit premature.

Okay. So, we should expect some -- like we should expect some numerical guidance around that. Post the end of Phase II meeting, is that a reasonable expectation for us to have?

Yes. I think that is reasonable. We need to have feedback from the FDA. We need to incorporate that into our plans and then have that build it down into our budget. So sometime over the next couple of quarters, we should have a good estimate for you and then we'll be happy to chat about it at that point.

Okay. That's helpful. Thanks guys.

You’re welcome.

All right. Thank you. One moment for our next question. Next question comes from Mike Ulz of Morgan Stanley.

Hey, guys. Thanks for taking the question. Maybe just a follow-up on the pulmonary program specifically to the MMP7 program. Can you just remind us when we might see the initial clinical data there? And should the focus be just on target knockdown, or are there other data points that we should be focused on as well? Thank you.

Yes, I think -- so as we had stated at the Analyst Day meeting we really think the focus there should be on the patients since those are the population that has regulated MMP7 in the BALF and in the serum. So that's what we'll be focusing on. We're still in the healthy volunteer component of the study, and so we don't know how the patient cohorts will enroll just yet, depending on enrollment, it's conceivable we could have some data by end of next year.

Got it. Thank you.

All right. Thank you moment for our next question. Our next question is from Mayank Mamtani of B. Riley Securities.

Good afternoon, Dean. Thanks for taking our questions. So maybe just on the FeNO high asthma patient cohorts that you're just starting to enroll. Could you clarify the dose levels being looked at and sort of what initial number of patients you intend to have before you may look to disclose something externally? And if you could comment how this could be same or different relative to your execution on the mild to moderate asthma MAD patient cohort? And then I have a quick follow-up.

Sure. So there are the two highest dose levels is what we're looking at in the FeNO cohort. So that's the 92 and the 184 milligram dose levels that we studied in the healthy volunteers, we'll investigate those doses in the FeNO cohorts as well. And we're doing a 16 per cohort in terms of how many we'd have to have enrolled before we disclose data. I can't really give you a clear answer to that.

Yes. So let's just assume that we'll disclose those once those cohorts are complete. It wouldn't make much sense for us to feed that out dribs and drabs. I think we'll wait until that study’s over

Got it. And in terms of your asthma cohort data before the end of the year, could you just clarify, would you also include some valve bronchoscopy data also in addition to serum data on the higher dose levels? Could you just clarify that?

The asthma patients actually don't undergo bronchoscopy, so we don't have a valve data from the asthma patients. It's only the only sRAGE measure we get is from the serum in the asthma patients.

Got it. And just lastly, on the financials, the two milestones earned from GSK and the data could you just clarify how they will be sort of modeled on your P&L in terms of recorded revenue amortization schedule?

So, those milestones have already been recorded in revenue. They are not amortized over time. We actually recorded those -- the quarter before last, we received the cash in this past quarter.

Understood. Thanks for taking our questions.

Thank you.

Okay. Thank you. One moment for our next question. The next question comes from Ellie Merle of UBS.

Hey, guys. Thanks so much for taking the question. Just a follow-up on the pulmonary patient cohort timing, I guess for RAGE, just where are you in the enrollment of those high-pheno cohorts? I think you just mentioned you had 16 per cohort. And then for MUC5AC, I guess, where are you in enrollment of the asthma patient cohorts? And have you started enrolling in the COPD cohort? And then just for MUC5AC, what should we expect in terms of the timing of potential patient data there?

So on the phenol-cohorts, those -- the amendments to add those cohorts, I think, are just -- they've been filed and so they're working their way through the various regulatory bodies and ethics committees. And we haven't enrolled any pheno patients just yet. And then the MUC5AC patient cohorts were enrolling into the -- actually, all the cohorts are open. So that all of the asthma patient cohorts are currently open from MUC5AC. And we'd be looking, assuming enrollment goes well, probably having data mid to late next year as well. And then your last question, I believe, was on the COPD cohorts from MUC5AC, that's a similar situation to the pheno cohorts we've got the amendments filed and so those are working their way through to get ethics and regulatory approval. So we'd expect to have those being enrolled later this year, aiming to have data maybe end of next year.

Thanks so much.

All right. Thank you so much. One moment for our next question. Next question is from William Pickering of Bernstein.

Good afternoon. Thanks for taking my question. So on Adipose, you gave a really interesting update at the R&D Day, but you didn't disclose the target. I was wondering what the next steps on that program are and when we might learn more about it? Thank you.

Yeah. We have not disclosed targets. We are still in the early days a bit with Adipose. We are -- we have we have some ideas for our targets, but we are not prepared to show any more data there quite yet. My hope is that, you'll start to hear more about the clinical plan for Adipose in 2024.

Got it. Thanks. And then on HeFH, it sounds like you've become less definitive on the path forward for ANG3 in that indication versus last year. I was wondering, if you could just talk about sort of what aspects of your thinking have evolved? And how sure you are that you will, in fact, take it forward to Phase 3?

Yeah. So I think the issue here is whether we can develop the indication of heFH without a full cardiovascular outcome trial. And there is some presidents support there and some other ones. So we are working our way to understand if there is a subpopulation of heFH that can be pushed forward into a regulatory path without the requirement of the cardiovascular outcome trial. So that's kind of where we are right now.

Got it. Thank you so much.

Thank you. One moment for our next question. Next question is from Luca Issi from RBC Capital.

All right. Thanks so much. And again, maybe circling back on RAGE, James or Javier, what are you hoping to see for the initial readout for FeNO? I understand the follow-up will be short, but what levels do you anticipate at baseline? And what kind of reduction are you hoping to see there? Again, just trying to understand what the ability for initial success there? And then maybe, Ken, if I may. I think your prior 10-Q suggested that the bill the facility in Verona, Wisconsin was going to cost 200 million to 260 million. However, the 10-Q today suggested that number has gone up to 260 million 280 million. One, is that correct? And if two, what drove that change? Thanks so much.

Ken, do you want to start that?

So we have seen certain cost increases as well as about a quarter of a delay in that project. So you will see that, that total cost comes in a bit higher than we had originally estimated. That's really it.

Yes. So Luca, we do have a good point of reference for the FeNO therapeutics effect and that's the dupilumab and tezepelumab programs in which they saw somewhere between 40% and 48% reduction. I think it's either going to call which one, but that's the RAGE that I think we believe will be convincing that the RAGE inhibition, it does work through the IL-13. So that's the range that we're seeing. I think the baseline is 20 and…

Greater than…

Greater than 20 FeNO, and people with FeNO greater than 200. So it's the same population very much of those point of reference, if you will, studies, and we expect to see something similar.

Got it. Thanks so much.

All right. Thank you. One moment for our last question. This question is from Brendan Smith of TD Cowen.

Hi, guys. Thanks for taking my questions. Maybe a couple of quick ones from us. First, I just wanted to ask actually about some of the CNS programs that you alluded to that you're going to kind of announce and bring it to the clinic over the next couple of years. Really, I guess, how are you kind of thinking about which indications to move there? Are you really thinking to focus more on final indications, given that the tissue is a little bit easier to get to or really what is kind of your strategy and deciding where to go there? Kind of just trying to understand, where you think is especially right for RNAi. And then if I could, just really quickly, I wanted to ask a little bit more about kind of your financing plan. Obviously, you have a decent balance sheet for now. But I mean, to your point, you haven't raised equity in a few years, but you have a fair number of important readouts coming up and a lot of studies going on. So as we're kind of just looking at cash burn over the next few years, what really is kind of your strategy for the next 18, 24 months?

Sure. I'll take that, and then I'll let Javier and James take a prior one. So look, as I mentioned in the prepared remarks, partnering is really a cornerstone of our financing strategy. And so we are exploring a number of different options really as we speak that are important for us. There are also other avenues. We are also exploring the possibility of doing some specific product financing for APOC3. We know that's going to be a CBOT. We know that's going to be expensive. And we are exploring the cost of capital for financing that in return for some royalties on that product for some period of time, things of that nature. And I think that we can get a long way to our financing needs through those levers and we are looking to pull those levers certainly in the near to mid-term, I think it's important for us.

And then in regards to the CNS targets, we're interested in targets that may involve the spinal cord, as you mentioned, but also targets in the cortex, we can get good knockdown in various parts of the cortex and we're looking at some targets in the deeper brain, although that can be a little bit more challenging to achieve the same level of knockdown. And then we like -- as we do for other tissue types targets with a degree of genetic validation that are either genetically defined or have some level of genetic validation behind them and preferably a degree of clinical validation with other modalities that are out there that have shown success that we could follow-on.

All right. Thanks.

Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to Chris Anzalone for closing remarks.

Thanks everyone for joining us today and I hope you have an enjoyable summer, and we look forward to talking to you soon.

All right. This concludes today's conference call. Thank you for participating. You may now disconnect.