NASDAQ:ARWR
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Business Update
Obesity Assets to Enter the Clinic in 2025
On August 14, 2024, Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR) held a webinar (slides are available here) on the company’s obesity programs, ARO-INHBE and ARO-ALK7. ARO-INHBE targets inhibin subunit beta E (INHBE), which is primarily expressed in hepatocytes. Activin E (dimeric INHBE protein) is a hepatokine that is secreted by the liver and promotes adipose storage by suppressing lipolysis in adipose tissue. The receptor for activin E is ALK7, which is a TGF-ß superfamily member that is expressed in adipocytes. Support for targeting INHBE comes from genome wide association studies (GWAS) that show loss of function (LOF) variants of INHBE are associated with reduced abdominal fat and a lower risk of cardiovascular disease and type 2 diabetes (Deaton et al., 2022). In addition, Inhbe knockout mice show reduced body weight gain on a high fat diet (Adam et al., 2023).
The following slide shows the results of treating mice with an Inhbe siRNA in a diet-induced obesity mouse model. Following 10-14 weeks on a high fat diet, mice were treated with Inhbe siRNA or control and the results showed that mice treated with the Inhbe siRNA had a 19% suppression in body weight gain. The graph on the right shows that the Inhbe siRNA knocked down expression of the Inhbe mRNA by 94%.
In regards to body composition, treatment with Inhbe siRNA resulted in a decrease in fat mass but with preservation of lean mass. The following figure shows results from DEXA scans, with representative scans of saline- and Inhbe siRNA-treated mice on the right. The graphs on the left show that there was an average decrease in fat mass of 22% for Inhbe siRNA-treated mice but this was not accompanied by a decrease in lean mass, which is seen with GLP-1 agonist obesity treatments.
Just as with INHBE, support for targeting activin receptor-like kinase 7 (ALK7, ACVR1C) also comes from GWAS studies examining LOF variants that show heterozygous loss of ACVR1C alleles are associated with lower risk of obesity and type 2 diabetes (Emdin et al., 2019). Adipocyte-specific Alk7 knockout mice show reduced body weight gain on a high fat diet with a decrease in fat mass loss with limited reduction in lean mass (Guo et al., 2014).
The following slide shows results of experiments performed with an Alk7 siRNA that targeted adipose tissue. The figure on the upper right shows that Alk7 mRNA expression was reduced by 80% in inguinal adipose tissue and by 41% in perigonadal adipose tissue. The graph on the left shows that Alk7 siRNA-treated animals had an approximately 40% suppression in body weight gain compared to saline controls while on a high fat diet.
Body composition scans showed that similar to inhibition of Inhbe expression, knockdown of Alk7 results in an average decrease of 50% in fat mass with no significant effect on lean mass.
Lastly, given the success of currently available obesity treatments, Arrowhead was interested in how an ALK7-targeted therapy could work with existing therapies. The following figure shows the results of testing an Alk7 siRNA in conjunction with tirzepatide (Zepbound®). The graph on the left shows the change in body weight for mice on a high fat diet treated with Alk7 siRNA, tirzepatide at two different doses, or tirzepatide plus the Alk7 siRNA together. The results showed that the combination of the Alk7 siRNA and a sub-therapeutic dose of tirzepatide was just as effective as the higher dose tirzepatide monotherapy. In addition, while there was a decrease in lean mass associated with the weight loss for animals on tirzepatide monotherapy, the amount of lean mass lost was lower for mice on Alk7 siRNA and tirzepatide combination therapy.
The current clinical plan for the company’s obesity assets is to perform Phase 1/2a studies for both ARO-INHBE and ARO-ALK7 that will include both single ascending dose (SAD) and multiple ascending dose (MAD) cohorts. The MAD cohorts will receive two doses; one on Day 1 and another on Day 29. Both studies will include healthy volunteers with obesity (BMI > 30). The subjects in the ARO-ALK7 studies will also undergo adipose biopsies. For both compounds, the studies will also include cohorts that will be treated in combination with tirzepatide. The primary endpoint of the studies will be safety, with secondary endpoints examining pharmacokinetics. Exploratory endpoints will examine the level of the targeted gene product (either serum activin E or adipose expression of ALK7), weight change, waist circumference, fat mass vs. lean mass, liver fat content, lipid profiles, and glycemic control parameters.
Financial Update
On August 8, 2024, Arrowhead announced financial results for the third quarter of fiscal year 2024 that ended June 30, 2024. The company reported no revenue for the third quarter of fiscal year 2024 compared to approximately $15.8 million for the third quarter of fiscal year 2023. The decrease was primarily due to decreased revenue recognition associated with the company’s license and collaboration agreements during the current quarter. R&D expenses for the quarter ending June 30, 2024 were approximately $152.4 million compared to $94.8 million for the quarter ending June 30, 2023. The increase was primarily due to increased candidate costs, R&D discovery costs, salaries, and facilities expenses. G&A expenses for the third quarter of fiscal year 2024 were $23.7 million compared to $23.8 million for the third quarter of fiscal year 2023. The increase was primarily due to higher salaries.
Arrowhead exited the third quarter of fiscal year 2024 with approximately $436.7 million in cash, cash equivalents, and investments. The company announced a $500 million senior secured credit facility with Sixth Street that includes $400 million funded at close and an additional $100 million available at Arrowhead’s option. The debt carries an annual interest rate of 15%. There are no scheduled amortization payments during the 7-year term of the loan and no scheduled cash interest payments. Partial repayments of the loan prior to maturity will occur only after the company receives income from either partnerships/collaborations or commercial revenue. As of August 1, 2024, Arrowhead had approximately 124.3 million shares outstanding and, when factoring in stock options and restricted stock units, a fully diluted share count of approximately 131.4 million.
Conclusion
Arrowheads obesity candidates look very promising and we look forward to the initiation of clinical trials and the data readouts from those studies. The decision to take on debt for any pre-revenue biotech is always a controversial one, however we believe this is a good deal for Arrowhead as it allows the company to utilize its cash outlays to prepare for the potential commercial launch of plozasiran in FCS and get to a point where significant revenues could be coming in from sales of plozasiran in SHTG. Our valuation now stands at $70 per share.
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