ARWR - Arrowhead Pharmaceuticals Requires Caution

Summary

• Arrowhead Pharmaceuticals, Inc. is a company with strong potential.
• However, it has yet to conclusively prove the worth of any part of its vast pipeline.
• I will stick to the sideline on Arrowhead Pharmaceuticals, Inc. until that happens.

In my previous coverage of Arrowhead Pharmaceuticals, Inc. ( ARWR ) in June, I said that while ARWR is the acknowledged leader in the RNAi space, I would wait for more clarity on the pipeline before jumping in. In support of my position, I cited three reasons.

First , these are unprecedented times, and nobody knows where we go from here. Second , ARWR has so many assets we can afford to let one of them cross the regulatory mark before we consider investing; that is to say, let one of them prove the platform is good, then we can invest in the platform. Third , ARWR is difficult to fathom; there are too many assets, too much going on, and too little focus on data from a late-stage trial of a lead asset.

A month after my article, ARWR stock was up 50% for a spell, so my thesis was questioned by readers. But a few months later, and today, ARWR is back to where it was in June after suffering multiple setbacks, so I think my position has been borne out.

Among the setbacks, two are major - one, high placebo performance in fibrosis messed up ARO-AAT data, and two, Johnson & Johnson (JNJ) is about to return JNJ-3989 back to ARWR.

In January, ARWR and partner Takeda published data from the SEQUOIA trial, in 42 patients with AATD-LD. Data was looking generally good, with dose-dependent mean reduction in serum mutant alpha-1 antitrypsin protein (Z-AAT), improvement in fibrosis, and so on. However, what flummoxed the company was the following placebo data:

No placebo patients experienced an improvement in portal inflammation while 44% experienced worsening, and 22% of placebo patients experienced worsening while 38% experienced an improvement in fibrosis at the postbaseline liver biopsy visit, according to the companies.

Note how a large number of placebo patients experienced an improvement in fibrosis. The company explained this away as "known variability on histologic fibrosis assessment." Another interesting problem was: the proportion of patients with worsening of one point or more of fibrosis was similar across the two groups: 25% for fazisiran and 22% for placebo. The company assured investors that a larger phase 3 trial will probably have placebo patients more closely resemble natural history data for untreated patients with AATD-LD, where, according to such a study cited by the company, around 39% of AATD patients showed fibrosis progression at three years, while only 15% improved without treatment. However, this was hardly reassuring. There is no logical reason to assume a larger patient population will not make the high placebo effect even more prominent. If that happens, the trial data will be skewed towards the placebo. Anyhow, Takeda is starting a phase 3 trial now with fibrosis reduction as the primary endpoint. That will be a tough nut to crack, going by the earlier data.

Also noteworthy, while the disease has no current treatment option, a number of companies are working towards one. Mereo has alvelestat, while Novo Nordisk has belcesiran, which it acquired through the purchase of Dicerna.

In February, Cantor Fitzgerald reported that Johnson & Johnson is deprioritizing its Hepatitis B portfolio. JNJ has a huge, multibillion dollar deal with ARWR for 3989, and the deal is in place since 2018. There could be various reasons for this, but one certainly is the fact that GSK/Ionis' Bepirovirsen has done better than any other project in terms of HBsAg reduction, getting results that are nearly double those of nearest competitors, including Arrowhead's.

Within a week of the Cantor Fitzgerald report, JNJ relinquished rights to another ARWR product, ARO-PNPLA3 (formerly JNJ-75220795), which was being developed for NASH. In a phase 1 trial, in patients with a certain mutation, there was a 40% reduction in liver fat. I am yet to see the details, but when a company specifies a niche population like this, I worry whether the molecule did well in the original target population.

The single positive news that emerged for ARWR in the last few months is that within 48 hours after the Amgen-partnered heart drug olpasiran declared positive phase 2 data, Royalty Pharma picked up rights to the drug for $250mn upfront and $160mn in milestone payments. This is over and above ARWR's $400mn deal with Amgen (AMGN). Olpasiran, which is designed to lower levels of apolipoprotein ((A)), has competition in Novartis' pelacarsen, which is a year or more ahead in clinical development, being in phase 3 right now. However, the reduction seen with olpasiran is 95% at 75mg every three months, while pelacarsen at 20mg weekly saw an 80% reduction. If the large 6000-patient phase 3 trial does well, olpasiran will be in a strong position, proving ARWR's platform yet again.

Financials

ARWR has a market cap of $3.56bn and a cash reserve of $617mn. This excludes the $25mn they earned from Amgen as milestone payment, and the $15mn from Horizon. Their R&D expense was around $80mn, while G&A was around $20mn. At that rate, the company has 5-6 quarters more of cash runway.

Bottom Line

I think the events of the past 8 months have proven that my stance was right. Arrowhead Pharmaceuticals, Inc. is a RNAi leader, and it has a vast pipeline with multiple big pharma deals. Arrowhead Pharmaceuticals, Inc. may become a behemoth, in time, however, it has yet to conclusively prove its platform. I am going to keep waiting for one pivotal data before I jump in.

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