Monday, July 8, 2013

Arrowhead Research: The Next Two Years

Over the last year, Arrowhead Research has undergone a corporate transformation putting it into a position to develop important drugs and create sustained shareholder value.   After what must be a decade of chasing after the latest and hottest in nanotechnology, the company finally appears to have realized that it is in possession of a platform technology that can deliver not just dreams, but actual life-changing products: Dynamic Polyconjugates.

In the following, I will describe how I see the company go about creating value over the next 2 years.


ARC520, ARC520, ARC520

The current corporate messaging is clear: it’s all about the company’s potential cure for chronic hepatitis B, ARC520 (for review, follow this blog and Arrowhead's investor day).  ARC520, of course, is enabled by DPC delivery.  However, as its own experience and that of fellow Tekmira, Silence Therapeutics, and others have shown, the financial markets do not care much about valuing the key enabling delivery technologies in RNAi Therapeutics.  As a result, the company is focusing public attention on its lead product candidate which by now probably has commenced dosing in the first clinical study.

ARC520 has the makings of the start of an enormous franchise (note: I expect ARC520 to be followed by other versions should initial clinical results bear out the immune reactivation hypothesis).  Chronic HepB, a disease affecting over 300 million globally, has to be considered an incurable infection and there has not been an experimental medicine that can knock down the key surface antigen (HBsAg) as rapidly and potently as ARC520.  By knocking down HBsAg, it is hoped that the immune system can be reawakened to seroconvert against HBsAg which would be considered a functional cure.

We should find out whether the hypothesis is correct with the results from the first multi-dose phase IIb study which I expect to come in by the end of 2014/early 2015.  There is a slight possibility, however, that first functional cures may be observed in the single-dose phase IIa Hong Kong study with results in less than a year.


Beefing up the DPC-enabled pipeline

While ARC520 has enormous potential for which spelling out the market size would yield ridiculously high numbers, there are two main risks that need to be overcome. 

The first one is the safety of a DPC-enabled RNAi Therapeutics.  DPC has never been tested in Man before, so you always cross your fingers as it enters the clinic.  Nevertheless, the company has repeatedly reported in the peer-reviewed literature and otherwise that the safety profile, from rodents to a chimpanzee, is looking clean.  This gives me confidence that safety might actually be a strong point of the liver-targeted, short-circulating DPCs.

The second one is about the validity of the HBsAg immune reactivation hypothesis.  Key opinion leaders in the chronic HepB field support it, but as long as the direct link has not been demonstrated, it remains a risk.

As a result, the company would not do justice to DPC technology or itself by making ARC520 multi-dose results a binary event.  Instead, Arrowhead Research should add one or two additional DPC candidates to the pipeline by the end of 2014 when critical results for ARC520 are to be expected.

The first one is expected to be announced in 2013.  This should be another liver-targeted, two-molecule, intravenously infused DPC RNAi Therapeutics.  As Alnylam’s efforts show, there are numerous attractive, often orphan indications that involve gene expression in the liver.

In 2014, I would hope that a liver-targeted candidate based on their newly developedsubcutaneous DPC technology will be added to the pipeline.  Arrowhead presented first such subQ data in late 2012 so that with a few CMC refinements and gene specific development work, they might have a candidate in 2014.

Adding a subcutaneously administered DPC candidate to the pipeline would not only be progress in that this route of administration opens up new therapeutic opportunities, it would also mean that Arrowhead succeeded at where it historically has struggled with: making a single-molecule DPC at high enough yield and which can be properly analyzed.  Remember, Merck at the 2012 OTS meeting more or less announced single-molecule DPCs to be their RNAi delivery dream.  This means that Big Pharma will be and probably are already queuing up for the technology.  Big Pharma loves single-molecule solutions.


Going after the TTR cake: a proven path of value creation

Going by the analyst reports, more than half of Alnylam’s market capitalization ($2.4B) rests on their TTR amyloidosis pipeline: intravenous SNALP-based ALN-TTR02 in mid-stage phase II, and GalNAc subcutaneously delivered ALN-TTRsc in early phase I.  I believe that Arrowhead can create a candidate that is superior to both of them and thus claim a good part of that ~$1.5B in a relatively short period of time (~1.5 years from first IND to generate ALN-TTR02-type data).  Compared to ALN-TTR02, the subcutaneous mode, but equal potency could make it the preferred RNAi Therapeutic.  On safety, we have to wait, but this could be another differentiator.  Compared to ALN-TTRsc, improved efficacy and less frequent administration with lower injection volumes would make an ARC-TTRsc the winner in the market place.  Compared to phosphorothioate antisense-based ISIS-TTRsc, the winning differentiators would be potency and safety.

Arrowhead is a $70M market cap company.  It would seem like a no-brainer to go after the $1.5B market cap attributed to early-stage TTR amyloidosis data for their first subQ IND.  With a superior product and quite different molecular composition (delivery chemistry, possibly Dicer-substrate RNAi trigger) and superior clinical performance, no orphan drug designation by Alnylam or ISIS could hold it back.


Price Target: $30

In summary, by H2 2015, the time current funding is expected to last, Arrowhead Research could have demonstration of functional cure for chronic HepB (I won’t even start trying to value that), two additional product development candidates in the clinic one of which likely with a value between $1-2B, and a potent single-molecule delivery platform that will attract much attention in the industry. 

The achievements of these goals do not assume heroic operational feats.  Even in a worse-case scenario, namely that the immune reactivation hypothesis fails to live up to its expectations, ARC520 should add to the evidence of DPCs being a strong delivery platform thereby also de-risking the other two pipeline candidates.

Anybody laughing at a price target that is 15x that of its current price, by somebody who has put most of his stock market investment in that company at that, should perform an apples-to-apples comparison of clinical programs (ARC520 vs ALN-TTR) and delivery technologies (DPC vs GalNAc) with $2.4B market cap Alnylam.  Could it be that Wall Street has it all wrong?  Of course, Arrowhead Research is not the chosen one in RNAi Therapeutics on Wall Street, but I believe that clinical data on chronic HepB could lower Arrowhead’s cost of capital such that by mid-2015, a financing or business development deal would be on much improved terms.

25 comments:

Nick Pearson said...

totally agree Dirk, doesn't it make sense for any big pharma thats trying to compete with ALNY to just acquire ARWR for 4-5/PS (basically steal the CO/ which im afraid of) cause they get the DPC IP and this massive Hep B drug candidate
-Nick Pearson

tuf said...

Got to admit I cackled aloud at this prospect... ARWR TTR. Does Anzalone have the cojones?

Anonymous said...

I believe ARWR OS count closer to 40mm following last FO.

tettrazini said...

Dirk,

Thank you for this most recent blog.

How big a hurdle would it be to deliver orally bioavailable DPC drugs?

Dirk Haussecker said...

Oral DPCs...I think there are ways for simple single molecule solutions. ISIS had been working on some oral tech, but cost of goods prohibitive. Arrowhead's higher potency/lower dosage could mean that cost of goods amenable.

tettrazini said...

ISIS only indicated the possibility of oral delivery with their gen 2.5. Before that ASO pills would have been horse size. ISIS' lead gen 2.5 drug, STAT3, is for cancer which largely negates the need for oral dosing. It was ISIS' intention to contract out oral formulation work.

You believe there are ways for simple single molecule solutions for oral delivery. Dynamic polyconjugates don't seem to fit that description. Is the hurdle chiefly a question of protecting the DPC from the harsh stomach environment and then releasing it once in the intestines? If that is the case, it would seem quite doable (given adequate resources)and once done fairly repeatable for other DPC drugs.

Anonymous said...

why did Roche sell this if so important?

Dirk Haussecker said...

Roche/Big Pharma: no brain of their own, herd instinct. Sorry, when it comes to RNAi Rx, Big Pharma so far has been an absolute embarrassment.

Tet: I believe you are on the right track.

Anonymous said...

I am wondering how chimpanzee is doing? Have they achieved functional cure in chimpanzee yet? It would give me greater confidence in ARC520 if they can achieve functional cure in chimpanzee.

Anonymous said...

I am not technical but could Marina Biotech's tkRNAi and DPC be combined to create a pill that would make it through the stomach's acidic environment? Two protective coverings for the siRNA in one?

Dirk Haussecker said...

tkRNAi and DPCs...no synergy whatsoever.

The chimp is probably going to live a quiet retirement. No alcohol and fatty foods though.

Terry Chrisomalis said...

Dirk what do you think about RXII's upcoming multi dose results? Better efficacy than 50% reduction in single dose?

Dirk Haussecker said...

RXi...this is going to be a big event for the company and the concept of self-delivering RNAi triggers. Single-dose looked intriguing though not much detail provided. So let's just wait and see.

Anonymous said...

is the 1 log reduction ARWR saw in its chimp study enough to drive cures?

Anonymous said...

i meant: is the <1 log reduction in HBsAg and 1 log reduction in HBV DNA enough to produce cures?
the HBV infected chimp did not get a 3 log reduction in HBsAg

curious to hear your thoughts

Dirk Haussecker said...

This is not about getting the viral load down, it is about reducing the amount of the immune suppressive HBsAg and thereby achieve immune reactivation followed by HBsAg seroconversion=functional cure. To my knowledge, ARC520 has demonstrated the most profound and consistent HBsAg reductions in animal models.

Anonymous said...

i agree with the fact that clearing HBsAg is going to be critical. my concern is that, in the chimp, they did not even get a 1 load reduction in HBsAg, despite the fact that they got 3 logs in mice. the chimp is a more accurate model than mice. this is what makes me cautious.

Dirk Haussecker said...

It is unclear how much HBsAg knockdown you need for immune reactivation. 90% knockdown (which I'm not aware that other technologies can bring about consistently) may be the right amount; it may, however, also depend on the starting amount of HBsAg.

The chimp data showed that clearance was not as immediate as for normal gene knockdown by RNAi. This, along with the increased HBsAg knockdown following the second shot, strongly suggest that the existing pool of HBsAg in circulation in this chimp (with unusually high starting viremia) only cleared slowly. As a reminder, RNAi knockdown kinetics is largely determined by protein turnover. It is likely that with a third and fourth shot, the knockdown would have been well over 90%.

Latebloomer said...

Dirk, I was listening to the May conference call, and in that presentation, Dr. Givin stated the following about their goal of a functional cure:

"...to provide a functional cure; that's an immune clearance state characterized by surface antigen negative serum with or without seroconversion."

It seems, at least in this statement, that what's important for "functional cure" is that the serum be antigen negative.

I found it interesting that he said a functional cure would not necessitate seroconversion - "with or without seroconversion."

But then, I'm not a scientist.

I'd be curious to read any comment you might have on that... (and I'm looking forward to hear the conference call scheduled for later today).

Dirk Haussecker said...

I've always equated HBsAg loss with seroconversion=functional cure. I would have to refresh my memory, but I believe that following HBV vaccination, you may still be protected without finding seroconversion. This would suggest that this is also possible in a real infection. Maybe just a technicality of detecting the antibodies.

Latebloomer said...

You've definitely got me wondering about it.

After I wrote the comment above, I found the following article, which primarily discusses HBsAg seroclearance.

http://www.intmedpress.com/serveFile.cfm?sUID=316234ae-a6a7-41d1-b4db-288a4da23a36

I found it to be helpful in getting a better understanding of why Arrowhead's goal might be more "simply" that of directly affecting seroCLEARANCE of HBsAg.

(By the way, you can see what Dr. Givens said during the May conference call via the transcript, which can be found here:

http://seekingalpha.com/article/1422311-arrowhead-researchs-ceo-discusses-f2q13-results-earnings-call-transcript )

Going back to the article referenced above...

It mentions that for one thing, although antibodies often develop after seroclearance of HBsAg has occurred (in fact, 80% of the time), according to the findings described in the article, that can take years to happen, and a bit at a time, at that.

The main conclusion of the article about seroCLEARANCE of HBsAg, whether occurring spontaneously or by some sort of therapeutic treatment, is as follows:

"HBsAg seroclearance is almost always associated with loss of all serum markers of HBV replication, including HBV DNA as identified by PCR methods, and gain of anti-HBs over time. The long-term outcome following HBsAg seroclearance is excellent if there is no pre-existing cirrhosis or viral superinfection... Hepatic decompensation becomes extremely rare after HBsAg seroclearance, even in patients with pre-existing cirrhosis who have no evidence of superinfection..." (pp. 140-141)

So, apparently, that association of positive outcome following HBsAg clearance is so strong that simply striving for that (as of yet elusive goal for HBV therapeutics) will be sufficient in and of itself for what Arrowhead needs to accomplish over these clinical trials (along with their safety goal for humans, as you also pointed out).

Surely, they will follow up with long-term studies in order to confirm the expected long-term outcome. But I can better understand now, I think, that the primary goal for them is to show a therapy that can actually achieve HBsAg clearance.

Linda

Dirk Haussecker said...

I agree, it's an interesting question and a humoral anti-HBV response (as indicated by anti-HBs) may not the only way towards a functional cure of HBV. Limiting yourself to HBsAg seroconversion as a study endpoint could indeed underestimate the true cure rate.

Latebloomer said...

In an unrelated study, it's recently demonstrated how effective a decoy can be...

I don't know... I found this to be a quite striking study having to do with a treatment for dwarfism (being studied in mice at this time), in which treatment with a decoy is proving to be very effective. The decoy helps to take up material that an over-reactive receptor takes on too much of.

http://news.sciencemag.org/biology/2013/09/treatment-gives-dwarf-mice-growth-spurt

Not only is it fascinating for what this could mean as a treatment for dwarfism, but it reminded me of what the HBV virus does in its abundant production of the s-antigen, which is thought by many to act as a decoy in relation to the human immune system.

It just struck me, I guess, what a significant difference a "decoy effect" can have in the human body. In the above illustration, it's a positive difference; whereas, in the HBV illustration, it's a negative difference.

It just gave me a further jolt of hope for what ARC520 might be able to accomplish by dramatically reducing the "decoy effect" that HBV makes use of - that it may indeed make a very important difference by relieving the body of this negative "decoy" so that human antibodies are much more free to go after the virus itself (better attacking s-antigens actually attached to the virus when there is no longer an abundance of "extra" s-antigens acting as decoys).

I know that HBV may affect the immune system in even more complex ways, but the decoy part of it (due to the simple great abundance of the independent s-antigens it produces) does at least seem to be an important part of what happens.

Linda

Latebloomer said...

As someone mentioned elsewhere in response to a similar post of mine, the two operate by different mechanisms.

In response to that, I wrote the following:

I wouldn't argue against the two working along different specific mechanisms, but I think the basic idea is much the same.

From the article about this novel treatment of dwarfism using a decoy:

"The researchers hypothesized that these free-floating copies of the receptor would serve as decoys, capturing fibroblast growth factor molecules and reducing stimulation of the cartilage cells’ receptors. That’s what appeared to happen."

Isn't that quite similar to what the HepB virus does?

At least according to some, it produces a lot of free-floating surface antigens (and other free-floating antigens) with the express purpose of deploying a lot of "decoys" to bind with antibodies that would otherwise bind with surface antigens (and other antigens) that are actually functioning as part of the infecting virus.

The difference is that in the therapy being studied with dwarfism, they're *adding* a decoy; whereas, in the therapy being studied with ARC520 and HepB, they're *removing* a decoy(s) (or the ability of the HepB virus to produce decoy antigens, at least removing that ability to a large extent with 90% or more KD).

Mainly, I just found it helpful to learn of a demonstration actually showing what a difference a decoy can make in the human body.

If a decoy really can make such a difference, then it *may* be that that's the only strategy the HepB virus has needed (until now, ;-)) in order to protect itself in the human body.

And if that's the case, then that would be excellent for the chances of ARC520 to indeed make a huge difference by straight-forwardly removing the HepB virus's capacity to form decoys.

Linda

Latebloomer said...

On another note, even if - for whatever reason - a high KD of free-floating antigens didn't, in itself, make a significant difference in the recovery of the immune system (although I certainly hope and think it will), I would think it would still be considered quite valuable as a therapy to be used in conjunction with other therapies.

Surely, for example, it would be considered complementary to Gilead's new HBV candidate to have high antigen KD occurring while administering a therapy to directly stimulate the immune system.

Wouldn't it?

Linda

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