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Executives

Lauren Glaser – Investor Relations-The Trout Group

Christopher Anzalone – President and Chief Executive Officer

Robert Gish – Chairman-HBV Clinical Advisory Board

Joan M. Block – Executive Director and Co-founder-Hepatitis B Foundation

Bruce Given – Chief Operating Officer and Head-R&D

Arrowhead Research Corporation (ARWR) Hepatitis B and ARC-520 Program Update Conference Call March 25, 2013 12:30 PM ET

Lauren Glaser

Okay, hello everyone thanks for coming especially on this rainy day. I’m Lauren Glaser from The Trout Group and I just wanted to thank you all for attending the Arrowhead HBV luncheon, and I’m going to turn it over to CEO, Chris Anzalone, to start this off and he will introduce the rest of our panel members.

Christopher Anzalone

Thanks very much, and thanks to all for coming. I’m happy to see that there is no (inaudible) for me. So thanks for coming out and spending some time with us. I’m the least important speaker today. So I’ll spend two minutes of your time and I’ll hand it over to the experts. A couple minutes on our company, we’re a targeted therapeutics company Arrowhead. We have a simple multiple platforms that enable us to target a variety of therapeutic modalities, having said that, our real focus within that is in RNA interference. We acquired Roche’s RNAi business in October, 2011 and now positioned ourselves we think a very strong and broad RNAi player with what we think is the best delivery system in field.

So most our resources go into that program, within that program Hepatitis B is our lead, and we have put together realms and realms of data on the safety of the delivery system in both mammals, primates, as well as rodents and we have established, I think very impressive efficacy data in two road models and then most recently we have efficacy and safety data in a single chimpanzee with a chronic HBV infection.

So we view that as a primary value driver for us in the short-term and the mid-term, now only because we think this is a good drug and we think that we have a shot of getting to a functional cure in a way that nobody else at least right now can do and we’ve got first mover advantage in this new type of treat – in this new way of treating HBV, but also it makes this set of platform that we got from Roche tangible. And so as you’re looking at the data, as you’re looking at the presentation, think of this in those two ways, one as a proof of concept for this drug and second, as an example, the power that we’ve got with these platforms again, it came primarily from the Roche acquisition.

So what we wanted to do today is to give you a better understanding about this program, give you some new data on the chimpanzee and then to give you a broader understanding about the market and the opportunities there. And so because of that we are fortunate to have two real experts in the field Dr. Robert Gish will be speaking first. Dr. Gish is a respected and world renown really HBV specialist, he is based in University of California, San Diego as the Professor. We also have Joan Block who is Co-founder and Executive Chair of HBV foundation, which is the largest patient and research advocacy group in the field. And so both of them will give you their perspective on the opportunities, and then of course, we have Dr. Bruce Given, our COO and Head of R&D who will be giving you some information on our program.

So with that, we’ll go into Dr. Gish.

Robert Gish

Thanks, Chris. And I’ll do something little different as my half life instead of spending on the podium, I’d like to walk around the room a little bit. And this is going to be mostly a presentation but if you have a pressing question, we’ll take questions from our participants here and you have to keep a little bit short, we’re going to be hitting a lot of information in the next 30 minutes.

And on a personal note, I have been involved with Hepatitis B now for over two decades. Patient management, patient efficacy, policy, drug development and managing patients everyday in my clinical practice in San Diego, because I am a practicing clinician. I was just in the Philippines and Vietnam last week for 8 days working on policy screening, education, these are countries of about a 100 million each where over 10 million people are infected in Vietnam and other 10 million are infected in the Philippines. The leading cause of cancer death in Vietnamese men and Philippines men is liver cancer caused by Hepatitis B, so you just shift discrimination, I am just giving you a snapshot because what’s happening in the Philippines and Vietnam happens in our country, huge part of my practice is Filipino patients, Vietnamese patients.

So I am going to try to bring some personal notes for this part of this presentation, through some disclosures and I work with about 50 different companies, so I guess you can say I have so many conflicts, I have no conflicts and I’m really an active participant with pharma, I think there are huge things that are moving forward, I sort of see Hepatitis B as what’s happened with Hepatitis C in the last three to four years. It went from a sleepy disease in terms of pharm and the investment community to some monolithic effort, investment and what’s going to happen to our patients. We need to focus that level of interest, technology, investment in our Hepatitis B and we’ll talk about why.

So Hepatitis B is a DNA virus, this is different than Hepatitis C, DNA virus is like (inaudible), CMB are incurable, once you get these diseases, they are in your body forever. We’re going to talk about what’s called the functional cure which is suppression of that virus, undetectable by any test, either serologic test, nucleic acid test and by that level of suppression, you change the natural history of this disease dramatically. We’ll talk little bit more about that as well.

So it is a complex virus that enters the cell and eventually enters the nucleus and most importantly, inside the nucleus there is something here called cccDNA. This is how this virus as a stable intermediary and why it can persist for decades in a person’s body and reactivate it some later date.

Ultimately, we want to get rid of this, but before that if we can get rid of virus in terms of any release S-antigen, any infectious virus in the serum, get liver enzymes normal, we’re going to take that risk of liver cancer and cirrhosis from about 30% lifetime risk down to far less than 1% and that’s really our next level of, our next goal in managing this disease. So this is the world’s most common serious liver infection, 100 times more infectious than HIV, 10 time more infectious than Hepatitis C, it’s transmitted by blood and body fluids, not by hugging, kissing, silverware, other things like that. But there is a huge problem of discrimination around the world with this disease and it’s another motivation on why people want to be treated very, very important issue.

So where are the numbers; in Asia-Pacific region, 112 million people infected, Europe, 14 million, U.S. 2 million people infected today, not all diagnosed, but this is what we think our accurate statistics, this is where I really want Joan, who is my partner in this presentation to talk about this unmet medical need and Joan I know you had three or four points, and I am going to give you the microphone for a moment to tell us what you think is the most salient issues with patient, patient efficacy.

Joan M. Block

Thank you, Bob. Again my name is Joan Block, I am a nurse by training and I am one of the co-founders of the Hepatitis B Foundation. So I have been involved in Hepatitis B research and patient efficacy for the past 22 years. All I think is, both in the United States and outside the U.S. some of the primary obstacles for Hepatitis B diagnosis is that most people are not tested. And there are several reasons, why they are not tested; one, providers don’t understand the seriousness of Hepatitis B; two, patients themselves don’t want to be diagnosed because there continues to be a lot of discrimination, and stigma attached to the disease, particularly in China and the Asian countries. People today in Asia are still losing jobs, losing marriages, not having their children allowed into schools if it’s in the Hepatitis B. So you have both stigma preventing them from getting diagnosed, here providers are not understanding the seriousness.

The other thing is just that, there is a perception that there is no cure for Hepatitis B, so why get diagnosed, and there is no cure. And therefore there is a tremendous need for a drug that will actually provide a cure, and I think that will also motivate people to get tested both from the provider side and the patient side. Thank you.

Christopher Anzalone

Thanks Joan. Very, very important points, you all have the slides on your memory stick. This is also part of the webcast, very, very important issues, few diagnosed, few being treated today. We can make a huge difference. We are planning such for instance in the U.S., trying to get every adult tested for Hepatitis B. As it quite reached the CDC or the preventive health services, task force radar yet, but we’re getting close to that, and in Asian countries we’re trying to get everybody tested as well, all adults tested.

So there is $2 million people infected. We think in the U.S., we think a third of those patients are going to get cirrhosis or liver cancer, Hepatitis B is the carcinogenic virus that’s preventable by vaccine, but that’s going to take us about 100 years to wipe that out using vaccine. Third highest cause of cancer death in men globally and about one in four people with chronic Hepatitis B will die of liver cancer or liver disease. And what do you think Joan, this 1 million people dying globally of either cirrhosis or cancer, do you think that’s an accurate number?

Joan M. Block

Well, I’m counting on the World Health Organization those numbers, but we do know that through our program in China that at least 0.5 million people are dying each year from liver cancer due to Hepatitis C, so there is a tremendous need to both prevent and also cure Hepatitis B because that’s too many people, most of those are men, in there 40s and 50s, so this is a disease that is taking down young men in their prime.

Christopher Anzalone

And this is what I see when I go to Asia, so like to hospitals working hospitals they have whole wards, they have whole hospitals full of patients with Hepatitis B related either cirrhosis or cancer. So Hepatitis B really simple terminology here, S-antigen is the tested define infection, if we can clear S-antigen from the blood, that’s what we are calling a functional cure. We have a paper that we just got published with Tim Block, Joan’s husband talking about this next step eventually may be five or ten years we can get rid of cccDNA and get it true cure, but that word functional cure is being used throughout the world. Core antibody is exposure, surface antibody equals immunity. This is what you see if you get a vaccine.

I’m not going to go through every detail on the rest of these slides, but if I have Hepatitis B patient, I have a lot of other blood tested I do imaging, looking for risk for liver cancers, staging their disease. It’s a very important part of my clinical assessment. That quantification of virus we’ll talk about indicates active infection and it really relates to risk for cancer and cirrhosis. There is a lot of variance of this virus and it’s part of the Arrowhead project just to make sure that there are drug, there are product. They are interfering RNA will in fact all the different types of genotypes, and other mutations that are in these viruses that affect the natural history and hopefully affect even the viruses that may be resistant to our oral therapy.

We genotype our patients, it’s just a very interesting virus, it has been in humans for at least 50,000 years, and has changed over time as people of the eagerest from Central Africa and different genotypes have different behavior, and I’m not going to go into great detail that you want to pan-genotypic drug. This is the natural history of Hepatitis B, child who gets Hepatitis B, 95% chance of infection; they’re not vaccinated, not protected. Adults have a lower chance of getting infection, and then enter these different disease states, and will be important as part of drug development to have, what we call the wild-type virus and also a mutated virus, because all these different states can lead to cancer or cirrhosis. You don’t have to have cirrhosis to get liver cancer.

So really anybody who is S-antigen positive will eventually want treatment, depending on costs, efficacy, duration, mode of treatment, little too fast. Just another graph talking about how high DNA levels are and the risk of liver cancer, conversely if you suppress DNA, you decrease cancer risk, you decrease cirrhosis risk. But ultimately, S-antigen clearance takes that risk to the lowest level. We really don’t care about liver enzymes in the future, treatment will be focused on virus. You have virus in your blood, DNA is the first trigger; the second trigger is if you’re S-antigen positive, you’re going to want to have treatment to clear S-antigen.

Finally, vaccination has dropped the prevalence in China for instance under 7%, but we really think 350 million to 400 million people globally have Hepatitis B today in spite of very aggressive vaccine efforts. The goal eliminate and have sustained suppression of HBV DNA prevents cirrhosis liver failure and cancer. What’s happening right now is that our patients are taking a first line therapy called entecavir made by BMS or tenofovir made by Gilead. Right now those patients are on those medications forever. Few patients 10% maybe after 5 to 7 years can clear S-antigen, but everybody else is on indefinite therapy. Adherence is a terrible problem, 40% of patients drop off treatment in the first year, 60% drop off by 3 to 5 years. They don’t want to take a pill everyday for a variety of different reasons. We need to replace this long-term indefinite therapy with some short-term therapy to clear DNA and S-antigen.

This is just all the bar information that we focused both on DNA levels and ALT to decide on who needs treatment, and these are guidelines for thresholds to treat 2,000 viral copies or IUs in the blood, elevated liver test, this is the simplest guideline to start treatment, but eventually, every patient who’s DNA positive and beyond that every patient who is S-antigen positive will want to have treatment. It all has to do with cost, efficacy, duration, adherence issues.

So antiviral therapy to clear DNA, the normalized liver test, we want to have S-antigen loss, but I mentioned that’s about 1% per year, and then we can stop therapy, but right now, that stopping therapy happens in less than 10% of patients at five years of therapy.

Talked about all these different end points, this is what happens when we treat people and try to get their DNA level to fall ideally to be undetectable in 3 to 6 months, on a normalized ALT blue line.

Here are the top line therapies; tenofovir is $5,000 to $7,000 per year, entecavir depending whether you pay cash or you can get discount through insurance is $7,000 to $10,000 a year that accumulates a huge cost over five to 10 to 15 years.

Interferon is a first line therapy, but in the U.S. that accounts for less than 1% of patients, it’s injectable, it has lots of side-effects, but I want to talk about injectable therapies. Globally, injectable therapies are really the preferred form of administration of the medication. If you go to Central Asia; India, China, South East Asia, lot of Eastern European countries, even European countries, injectable therapies are sell to be more credible than oral medication. So in interferon, it’s actually used globally, extensively to manage this disease, and it’s also a finite treatment, that’s one year and you are done, but the problem is that it only controls disease in less than one in five patients, we need a much higher level of efficacy, but we believe injectable therapies, whether it’s intervenous or subcu will be embraced if it has that efficacy target that we are talking about.

This is what happens with entecavir, if you take the medication and you are compliant for five years, 94% of patients will have DNA undetectable, but only five, maybe at most 10% will clear S-antigen and come off therapy. We got a long ways to go, and what’s happening for instance with entecavir, and this is what, tenofovir therapy as Gilead is investing in another drug to actually administered to people on tenofovir to stop tenofovir, because they know there is a whole issue of compliance and people not wanting to take medications indefinitely, and again just showing here S-antigen loss 11% at six years, 11% of people can come off therapy.

Interferon, I am just going to go through quickly. It’s got ease of use, because it’s one year, no resistance, S loss is also about 10%, but it’s got lots of side effects to it, injectable not real friendly in the U.S., but we think that could change with shorter courses of injectable therapy and it’s quite expensive, running $17,000 to $25,000 for one year.

Safety, someone takes the drug for ever they are going to worry about safety. This medication is first line therapy such as entecavir, it’s quite safe but there is a big black box warming and says lactic acidosis. Lactic acidosis is a potentially fatal disease, those black box warnings can just scare off patients, so we’re looking for medications with a favorable side effect profile, short duration of therapy, probably with Tenofovir is that it’s renal toxic, now if you adjust it correctly with close monitoring, you can take that renal toxicity risk down, really less than 1% per year, by 15 years, you got maybe 15% risk of renal toxicity. So there is an issue of Tenofovir, Gilead’s coming out with a new Tenofovir variant that they are bringing to market for both HBV, and HIV because of this issue and if you got renal changes and potentially changes in phosphorous you get the risk of bone disease, this just talks about bone disease, also in these patients with Hepatitis B, specifically on Tenofovir therapy.

Kind of move through that quickly, resistance is pretty boring right now, because with Tenofovir and entecavir to 1% at fixed years with entecavir, 0% at fixed years with Tenofovir. So resistance is really faded, but as part of the development plan with Arrowhead, they need to focus and making sure their targets are plentiful or broad based and avoid resistance. this virus is very clever and mutates maybe not a derivative HIV for Hepatitis C, the resistance could emerge in part of their technology is focusing on avoiding that. This is talked about what resistance is like again, entecavir 1%, tenofovir 0% pretty boring, much better than our previous second line therapies.

So back to adherence, patients don’t want to take medications forever, that you’ll get bored it’s a cost issue not understanding their disease, they feel fine they don’t understand that long-term risk, so short-term therapy will be embraced, injectable therapy is socially acceptable basically throughout the world.

This just walks through segmentation taking the pill all the time, healthcare access, monitoring laboratory testing, a variety of different barriers to care for inherent issues, was it more on resistance, in non-adherence. So how are we going to proven here its I really want to come back this short-term or one-time dosing injectable therapies will be acceptable, the shorter the therapy more acceptable that is especially we had these targets of the s-antigen clearance. That’s really the next phase in managing Hepatitis B.

But on summary, when I evaluate patients I could think about all these different issues that are part of my treatment and management issues that every patients brings up that question do I have to take this best medication forever, and it’s a major barrier to long-term at adherence and compliance and ultimately disease control.

Functional cure, we think that’s possible with the Arrowhead product. DNA is a target s-antigen, e-antigen, which I didn’t talk much about down regulating viral proteins, down regulating viral replication once that happens you can actually reconstitute the immune system. This virus manipulates the immune system not quite like HIV but similar to suppress the virus, the immune system reactivates and then can be involved either in controlled or ultimately in viral clearance. So the immune system is a partnership in this viral management.

A few other medications in development, BMS is developing lambda interferon for Hepatitis B. There is a big global trial, it’s a little bit better than interferon, will not be a game changer in my opinion. A number of other drugs are all listed here, most of these are either low probability or inactive, you are hearing today is that once this one of the front line medications that I think that has a high probability of making it to market, needing good patient utility, good patient efficacy.

I started by whole world with the interfering RNA working with Nucleonics. This is a DNA double stranded plasma that expresses, it’s an eiRNA product. This was administered to three humans. They did well. They had just a few side effects unfortunately didn’t go further in development, but I was the first person in the world to administer and expressed interfering RNA product to a patient and I bought into this technology intellectually strongly committed to this space.

This is a drug called Myrcludex B, it’s been developed in Germany. It’s an entry inhibitor. Has a chance of breaking Hepatitis B infection cycle, just to give you another competitive market where a drug maybe developed. There is also a drug here there are glucosidase inhibitors, Celgosivir I think that was one of the products that your team is working on with Hepatitis B foundation, and Bayer is working on a Capsid inhibitor, but I haven’t heard much about these compounds for a few years.

Ligand mediated targeting, TBCs you’re going to hear a lot about this. This is just a little bit of data that was published by (inaudible) and PNAS, gives you background information that you’re going to hear more from Bruce in just a moment. It’s the science that convinced me to engage with Arrowhead, we brought further clinical advisory board and set up clinical trials. This knockdown of Factor VII was very, very compelling information to deliver the product to the cells, have a biologic effect. Again, you’ll hear more about the science shortly.

So we want to suppress Hepatitis B, we want DNA to clear S-antigen to clear, and ultimately save lives, prevent cancer, prevent cirrhosis, decrease the number of patients needing liver transplant. We’re already starting to affect that with our all oral therapies, we want more effective therapies and we want to be able to stop our current oral therapies and not commit people for lifelong treatment.

S-antigen loss is our home run and that’s what we want to start seeing signals about, you’ll hear a little about that I think from the chimp data and we’re going to be hearing a lot more about that as we go into Phase Ib/IIa studies for drug development.

The seven approved therapies we have Phase b really it’s only three that are being used, two that are dominant indefinite treatment, it’s time for a change in our paradigm and well thank you very much for having me here today. Looks like we got one question to start with?

Question-and-Answer Session

Unidentified Analyst

Great, thank you very much, Dr. Gish for that overview. You mentioned early on the progress that’s being made in Hepatitis C if later now that huge number of drugs that are being used in combination really with respect to short duration therapy clearing HBV virus, what’s the difference between Hepatitis B and HBV, is it a viral difference, is it the cccDNA that’s causing it to be more stable, is it simply that HBV has got more focus and there has been more of a drug development effort there, what led to the success in HBV that we’re not seeing in that Hepatitis B.

Unidentified Company Representative

I am trying to think of a fair metaphor here, I though maybe a cow and a shark might be something, we got to look at a cow, they are feeding in the field, you got any type of weapon and you can take the cow out right? I think for sharks a lot more different thing, sharks have been around for 60 million years, constantly evolving, evading any type of hunting. So I really think that these are two completely different paradigms.

Hepatitis C is an RNA virus, has no stable intermediate, it does not integrate into the genome unlike HIV which gets in the lymphocytes as a retrovirus also genome driven, Hepatitis B is a retrovirus, it integrates and the integration is also replication confident and the cccDNA is a stable covalently closed circular, that’s also very stable, difficult to eliminate until you kill every liver cell. So very different paradigm, this functional cure is our next target, but I believe it’s possible with this interfering RNA technology, you can stop the recycling and recreation of the cccDNA. That’s a little bit high in the sky right now, but at least it’s theoretically possible, then immune reactivation, derepressing the immune system may clear out infected cells eventually.

Unidentified Analyst

But at first – you’ve talked about the s-antigen, the s-antigens being eliminated, these are key points, you also mentioned in your presentation that 8% to 11% all drugs are already approved. We’re starting to see some reduction of that. Is there any genetic make up on that 8% to 11% which you guys have noticed?

Robert Gish

So there is two important answers to that question, one is that the genotype makes a bit difference, there is a genotype A that is found in Western Europe, very high rate of spontaneous clearance and clearance with interferon and clearance with nukes.

The types you find in Asia, B and C, have a much lower rate of S clearance and response and the worst one is genotype D, which is the eastern Mediterranean, which very rarely clears s-antigen. So there is a genetic issue. There is a host issue too. We know if Hepatitis C, there is something called IL28. These are SNPs. African-Americans have the lowest rate of interferon response because they have a different response interferon therapy that’s genetically programmed. This IL28 also predicts who responds to therapy with Hepatitis B.

So we’re going to be able to genetically profile patients in the future, figure out who will respond to what. But this interfering RNA technology may completely jump over that problem, that’s just telling us we got pretty weak drugs, and that’s why we have a sensitivity on this immune programing.

Unidentified Company Representative

We are going to have about half an hour at the end for questions (inaudible).

Unidentified Analyst

Well this is going to sound little basic, but you said that everybody should be tested for the Hepatitis. What type of test do you give and why we probably all could afford to get our own test here, if it’s not paid for by the government. So we should all run out and get that after we finish with just weeks.

Robert Gish

We’re trying to lower the cost of testing and right now it’s about $20 to go through Quest or Labcorp to get a B panel. It’s cost effective according to Ken Sherman, a colleague of mine from Ohio. It’s a blood test. But we’re working on finger stick blood test that maybe a $1 or $2 called point-of-care or rapid test, those are a couple of years away, you dropped that cause, you dropped that barrier, we’ll be out testing most people, that will be part of cholesterol, bone densitometry mammogram, colonoscopy Hep B and C panels should be in everybody’s chart in my opinion, we’re getting there. Thank you.

Unidentified Analyst

Thanks, Bruce.

Bruce Given

Thank you very much, Dr. Gish. I would also say from the pharmaceutical side, it’s always easier to get people interested in screening when they feel there’s effective therapy, so effective therapy is very important for getting things going. I’m Dr. Bruce Given; I’m the COO of Arrowhead Research. Before I get going, I will be making forward-looking statements, I would refer all of you to the forward-looking statements disclaimer that’s at the very front of the presentations for those of you listening online, it’s the first slide after the introduction slide, and I would certainly encourage all of you to read that and understand investment risks inherent in any small company.

Let me also say that I’m so pleased to see a full room here, it’s always a great pleasure. I have been doing pharmaceutical R&D most of the last 25 years. We love all of our babies, but I must say that in the 25 years, I think this is the one product I’ve worked on, that feels like it has the best opportunity to be truly disruptive in the marketplace. And I’m very excited to be here working on this product.

You had a bit of a brief introduction to the concept of DPCs from Dr. Gish. This is our delivery format for siRNAs, any of you who may have been following this field know that this was a Nobel Prize winning discovery about a decade ago, lots of excitement, Merck jumped right in and bought Sirna for over $1 billion, Roche Novartis all the other big ones have got into it in a major way, wrote very large checks mostly to (inaudible), and then people realized actually couldn’t deliver it. It’s a wonderful technology, it works very well, but delivery turned out to be a major problem. Most of the delivery systems out there are lipid-based, they basically are creating lipid particles, which can pretty effectively deliver to the liver have not been very good for delivering elsewhere, are very difficult to target, and bring with them a variety of toxicities.

This technology, which came from Mirus Bio out of the University of Wisconsin, is not a lipid based technology, it’s based on polymers, on the cartoon here in green, you see the representation of these polymers. These polymers are heavily charged, we use the term amphipathic, they like to disrupt membranes as in their native state. If we inject these, they would never get anywhere, they would bind everything in the blood immediately, they will be cleared rapidly, they never get to the liver, so we mask them.

They are masked with an agent that’s proprietary to Arrowhead called CDM, it’s a malic acid derivative. We mask these down to the point that they look very inert in the blood, they have a very small negative charge, so they actually repel away from most things, and in the mask, we were able to add a targeted agent, so we can make them go where we want them to go, and in fact when we target these to the liver using this ligand known as n acetylgalactosamine or NAG, we are targeting a receptor that’s fell into almost entirely solely in the liver. There are a million copies of this receptor per hepatocyte. It’s designed to clear things from the blood, it loves to do it.

So we get 80% or 90% of the injected dose of these DPCs into the lever, which is just amazing, efficiency, but what’s nice about his, we can also target these in the future to cancer cells or other things. We just need a receptor on those cells that wants to take these up. They go into once they enter the cell, they go into something called an endosome, an endosome is a organule that’s used in the body mostly to chew things up. As endosomes mature as they start their process, they the pH goes down that’s part of the process, and in so doing that, what they do with our DPC is they actually unmask the CDM falls off, and now these molecules are essentially toxic to the membrane of the endosome, they foreclose in the endosome and they release the siRNA into the cytoplasm, into the cells sort of liquid if you will, and this is where RNA interference actually happens. This is the site of this.

So we not only get the RNA into the cell, but we also get it out of the endosome into the cytoplasm or it has to be effective, and these are some of the barriers that other technologies have had so much trouble over coming, and really are believed to have led to the exodus of much in Big Pharma out of siRNA when they tripped their hands and said, we love this technology, but we just can’t get it where it needs to be.

We are able to do that. The Arrowhead scientist went one step further, and in their initial application they were attaching the siRNA molecule to the polymer backbone, and that’s probably still the way we will tend to approach things like cancer in all likelihood, but they also found that they could actually have the siRNA separate from the DPCs as long as the siRNA was also targeted to the liver.

So in the case of ARC-520, our product for Hepatitis, we are actually using this approach on the right, where the DPCs and the siRNA’s are separate. And this makes it much easier from a manufacturing perspective, it also kind of makes it plug and play for any sort of approach that we would take to deliver. So any liver related diseases, we can simply take the backbone that we’re using with ARC-520 and add a different siRNA and it should work. So it’s a very nice simple modular system for us. And as you heard a bit and you actually saw this figure, very briefly in Dr. Gish’s presentation, this is highly efficient in the delivery of siRNA.

So here we’re using siRNA against Factor VII. Factor VII is a liver specific protein that produces very important in the clotting cascade. So we normally have to be making Factor VII or we develop hemophilia and we bleed and as you can see up here in the top, we produce very effective knock down when we administer a cholesterol Factor VII RNA together with our DPC, which is called NAG-MLP and not only do we have a very low effective dose 50.01 mix per gig, but you’d also see there that we have a (inaudible), so that’s a two log reduction and Factor VII activity and this is important because any of you who maybe have been following the small RNA space or the literature know that people get really excited, our competitors get really excited if they can achieve 70% or 80% knock down, maybe 90% knock down, 99% knock down as we have here is something that you just don’t tend to see.

This lower slide and I apologize it’s a little bit techy, this by the way this is published data that you can get the references of off our website. But if you look at the first column on the left that’s just what happens if you inject glucose, so basically you get no knock down of course. In the next column if you inject cholesterol Factor VII without the DPC you can get some knock down at a very high dose but it’s quite inefficient, this has been known for quite some time that you could get some liver knock down if you can deliver siRNA effectively to the liver but it’s quite difficult and very high dose.

The next panel involves cholesterol Factor VII now, siFactor VII, now administered with NAG-MLP and of course you see very, very good knock down. Take away the cholesterol and just to the siFactor VII with the NAG and again you get very important knock down, essentially very little and if you take the targeting off of the NAG-MLP on the far right, you also don’t get knocked down. So it all matters, the targeting matters, the DPC matters, how you produce the siRNA everything matters and it all works and it’s also been published and academically validated if you will, but what’s also very exciting about this approach is that not only do we get very deep RNAi, RNA interference we also get long lasting interference. So this is data after a single dose in non-human primates, so hopefully predictive of what you can expect to see in humans, and what you see after single dose very rapidly within a few days, we get very deep knock down again a Factor VII activity and it last for a month.

And if you have reduction Factor 7 you should also see an elevation in clotting times that would be the expected physiological effect and that shown on the top right and in fact you get the expected increase in clotting time as well showing that this is real that this physiological computes if you will, and in the lower two panels you have a ALT looking for liver toxicity and you have BUN looking for renal toxicity and you can see that even at doses three times higher than gives us that’s very deep knock down in Factor VII we don’t see signs of toxicity which is obviously very important.

Now this is a variation on the slide that Dr. Gish, showed about the path of physiology of the Hepatitis B virus in the liver and in the upper left you can see the virus enters the cell the DNA from the virus then enters the nucleus where it is repaired of the DNA that’s in the virus is actually not complete. It uses our own machinery against us to complete the virus create the cccDNA that Dr. Gish spoke about and also some of this may actually even be incorporated into the host genome is shown up there at the top there in the nucleus. But the cccDNA is that largely be the source of transcription to create the mRNAs and there’s a series of these mRNAs that are produced that traveled to the cytoplasm where two things basically happen to them, one they get turned into protein and secondly, some of these what are called replicative intermediate, get converted back into DNA using a viral protein that is produced by our host cells and translate in this RNA, that’s now single-stranded DNA is converted to double-stranded DNA packaged up with the proteins and secreted as four viral particles.

In that way, it kind of sounds like a little bit like what happens with HCV or HIV or something else. But the other story to HBV as Dr. Gish was talking about that is more different is over here on the lower right and that is this production of viral proteins that do not get associated with DNA. And these viral proteins are produced sometimes in massive excess, certainly tend to be produced in very significant excess over the viral particles and it’s not by accident probably that this happens, because these proteins are thought to be very important in this sort of immune suppression that occurs in the disease and it’s thought to be for this reason for instance that if you apply a nucleotide or nucleoside inhibitors, which work over here in preventing the production of viral DNA, you can wipe out viral DNA in the circulation and yet, we don’t get functional cures very often and the reason is because we’re still pumping out of a ton of these proteins, or at least the thinking is, that’s because we’re still pumping out ton of these proteins, we’re still immunosuppressed and we don’t develop an effective immune response. And this is the whole problem, because people got pretty happy when they found that they could use the nukes and they could get very close or maybe you can eliminate circulating virus, because after all, you do that with HCV, you cure the disease, you do that with other RNA viruses, cure the disease, but here we don’t cure the disease and these patients can actually still go on and develop cirrhosis and hepatocellular carcinoma albeit, they may beat a bit lower risk part.

But it’s all about the protein here and that’s been something that’s been recalcitrant for both interferons as well as for nukes and as Dr. Gish said, maybe if you’re charitable, you’ve got a 10% chance, if you’ve got the right genotypes or something, developing a functional cure, those patients have developed functional cures happened to be the ones that somehow do get their proteins down. And half a log, maybe a log reduction and they are the ones that have a chance and maybe, Dr. Gish will talk about that little bit during the Q&A.

So what siRNA does? What RNAi does is, it goes after not only the proteins, not only the DNA, but also the proteins, so it has a chance to be somewhat holistic, although we can certainly talk about the possibilities for combination therapy and it wouldn’t be a big surprise, but the one thing we do know is that what’s available currently is not enough. So that’s Arrow’s theory. But the whole goal is to try to get the host to cure itself, and develop this functional cure, and the only way we’re going to have a functional cure is, if our own immune systems takes over and does the job and the theory is that you’ve got to get the proteins down to make that happen.

So the approach that was taken was really, I think quite elegant and this is described very nicely in this paper that just got published a few weeks ago. It’s available online, study it’s not even in its print form yet that’s referenced at the bottom of the slide, but there is also you’ll remember there was a press release just a couple of weeks ago about, but what was done here is, it was known of course that this is a virus with multiple genotypes and then with mutations even inside of those genotypes. There are about 2700 genotype of viruses versions of HBV in Genbank. The starting point was to take that 2700 plus copies or genotypes of virus in Genbank and look for conserved regions, and they are basically looking for regions that were at least 90% conserved with the notion being that if they were conserved they probably are necessary for survival of the virus, and it would be likely that if you could knock them out, you could really limit the viability of the virus.

So they did that and then they did it and then they were able to using computers of course once they have those conserved regions. They were able to develop predicted effective siRNAs against those regions now people kind of know how siRNA, how RNAi works, so they were able to in silica design RNA is that they thought would be effective, they went one another step then, and they took all of those that would also be predictive to be effective RNAi agents against human genes or mouse genes in threw them out, so anything that we think could have off target effects that could have negative effects in a human or mouse since we use a screening model those were all thrown out, what left us with was a 140 sequences there were predicated to be effective RNAi agents, but predicted not to have any crossover negative effects on other human genes.

And won’t be hold if you look down here on the lower box you test on 140 of those in the computer, it’s absolutely miserable some of them, and they had zero ability to produce siRNA effects against the virus, all the way down to the lower left, were some them were terrifically highly, highly effective that be enable to shutdown the HBV virus. This is where Arrowhead came on board. This was a data that was available to us and got us so excited certainly got me personally very excited to take on this program, and this is where we came in, there were four indicating here by number 75,76,74 and 77 at 74 and 77 you have to go a little bit to the punch line, are the two siRNA ARC-520. The reason we have two is because we want to be sure we have full coverage of the genome, and secondly we wanted to try to create a real problem for a virus that tried to mutate away from us, because if they try to mutate away from one siRNA, we still have the other one to kill it. And as you will see in our chimp data a little bit, that was perhaps the internal part. I think we have proved it has been really smart in that thinking.

So what we did here and I am going to just roll through this because, I am not going to take all this time, we started by looking in two mouse models of HBV. The first one here is a transient transfection model we basically build the HBV DNA into a plasmid. It’s known actually, the Mirus scientists discovered a decade ago that if you inject into the tail vein of a mouse under high pressure with these plasmid DNA’s that you can get if essentially infection in the liver and something on the order of 10% to 20% of the hepatocytes, and this is hardly enough, this is used all over the world, but it’s a patent that’s owned by Arrowhead now, that was a Mirus Bio patent.

And if you do that we get about 10% to 20% of hepatocytes to be actively affecting, now mouse is not normally infected with the HBV virus. It does not persist there, but we do get cccDNA in the nucleus. We do produce all of the viral mRNA’s. We produce all of the viral proteins and we produce full viral particles. All of that happens, it’s just that they do not develop chronicity, now to keep from having problems with immunity getting in our way. We do, do this in immune deficient mice. But it allows us to very elegantly follow the time course of what happens when we inject a therapy, in this case ARC-520 and you can see with ARC-520 Hepatitis B surface antigen in the top left, HBV DNA in the lower left and HB e antigen, all of them fall dramatically.

So we’re looking at three logs or so that’s 99.9% reduction for those of you who like to think in terms of percentages, very rapid, severe falls in antigen and viral DNA, I’m not sure of it that there’s anything out there that can do this maybe Dr. Gish will tell me that perhaps the viral A, B approach or something can achieve this, but this is pretty amazing, very rapid, very complete reduction, and it last it for about a month. And this is showing our two both of the siRNAs that are in ARC-520 74 and 77 and you can see that both quite good.

We also then went to the second model. And this is a model where the HBV genome is incorporated into the mouse DNA. So these mice have HBV built into their genes, they produce virus in their cells, not just in hepatocytes, some other cells as well, but this really allows us to look very much on what’s going on inside the hepatocyte, because the 100% of hepatocyte essentially are infected, and behave like they’re infected. So we can look at the RNA, we can look at the DNA inside the cell, we can look at the proteins inside the cell. And what you see here up in the top, the left half here is what’s going on normally with these mice they’re producing a lot of viral DNA in the lower panel there, and which you can see on the right side, with either the HBV 74 or 77 or the combination, which is what’s in our product, there is dramatic reduction in the quantity of viral RNA and viral DNA seen in these cells. The lower one there, the one that’s labeled southern, across the top you see HBV transgenic DNA, that’s the DNA that’s incorporated into the mouse genome, so as you would expect we do nothing about that, but the rest of the DNA, which is what’s getting packaged up into viral particles and secreted, it’s essentially eliminated, and consistent with what we saw in our transient model, looking all the way out to far right at day 29, all of this RNAi persists.

So what we saw in the transient infection models, what we saw on the transgenic model that we have at least four weeks of activity from a single dose. And importantly, we need to prove that yes, we’re also knocking down the proteins, so here this is standing for core antigen, which is what’s normally done in these studies, and you could see in the two left panels, there is core antigen throughout the liver, but in the right panel when you inject these mice with ARC-520 you can’t see any sign of protein, and this is what you want, because ultimately the protein is probably more important than the DNA because after all we can treat a long side this, if we had to with tenofovir and entecavir, but what we really need to do is we need to knock down this protein, which is what we do.

So let’s talk about our latest data, this is very ahead of the process, this is a study that’s still going on, and this is our data in one chimpanzee, which may sound amazing to you, but it’s actually incredibly difficult as you might imagine to do these study anymore, but what’s interesting about chimpanzee is, it’s really the one model of disease that’s the same as in humans. So chimpanzees actually get Hepatitis B, if they get it when they are young, they develop chronic Hepatitis B like we do. They have a lower tendency to develop the inflammation, so they have a lower tendency to get cirrhosis and cancer, but otherwise they look very much like the Hepatitis B in humans, and they are really kind of the only model that does have. People work in woodchucks, but that’s not the human HBV, it’s a different B virus for instance.

So this is kind of the gold standard for trying to understand what might work. This animal is 36 years old, it’s female, she has been known to be HBV positive since she was three and if I remember right, I think actually when she was found in the wild, she was already infected if I remember right. For all we know she may have been neonatal, but that’s very similar to what Dr. Gish talked about earlier that infection early in life is associated with a high tendency to develop chronicity whereas late in life you have a very low chance of being chronic. She is classic in that. She developed this very early in life. She has received multiple anti viral drug and therapeutic vaccine exposures over the years, nothing has cured her course. Her latest liver biopsy, she had near a 100% staining for HBV. And she has unbelievably high viral loads right at the very top-end of I think what’s ever been reported for humans even with over 10 to the 10 viral particles per ml. Normal average in a Hepatitis B patient is more like 10 to the 7, so she is a 1000 fold higher expression.

Interestingly enough, she is a genotype B and she actually mismatches to one of our siRNA. So she is about as bad worst case of scenarios we can possibly have. She is a mismatch for one of our siRNAs and she is a super high expresser of the virus, a very, very hard liver. And if you look generally in the data from Genbank, 8% of genotype B’s would be predicted to mismatch to this particular RNA, which was number 77 for those of you keeping score, versus 5% who would be predicted to mismatch to 74%. But very importantly here, in all of the sequences in Genbank, all greater than 2700 only 0.4% would be a mismatch to both of our siRNA’s. So this again I think shows the wisdom of doing what we’ve done here.

She has been injected twice, once with 2 mg/kg, once with 3 mg/kg, these were doses that we predicted should be effective in humans based on kind of extrapolating from a Factor VII data and from the miles data. But we didn’t really know except from the fact of course that she is probably only getting 50% of the effective dose because she is probably resistant to one of the RNAs, but as you can see she developed very rapid reductions in HBV DNA, very rapid reductions in E-antigen, which is the middle figure here and HBsAg was interesting in that, it also has fallen very effectively, but it’s taken longer and maybe Dr. Gish can talk about it, there are some thoughts when you have extremely high level that changes the kinetics of clearance. and this is probably not a function of what’s going on at the liver, but more a function of what’s going on in the circulation clearing this protein from the circulation, it ought to be clearing faster, but it’s just so overwhelming and concentration that it’s just hanging around longer. but the bottom line was, we saw terrific reductions very quickly with both antigens and with the DNA. Dr. Lanford who has been doing these studies for quite sometime has studied those other agents, said he has never actually seen something happened this fast, so quite remarkable reductions even in a chimp that’s essentially resistant.

So in summary, we have developed an RNAi-based therapeutic for chronic Hepatitis B. We have targeted fully biodegradable DPC, we didn’t really talk about that, but we believe that the DPC itself is metabolized and gone from the liver within 24 to 48 hours. So we’ve repeated dose and we don’t expect any cumulative toxicity, because it’s all gone. We have the two cholesterol RNAi agents included in our product. We’ve shown highly effective knockdown in HBV mouse models of the HBV mRNAs, protein DNA and a very long duration of action of a month or more in mice. Parenthetically that the general thought in the RNA space is that mice tend to metabolize siRNA’s faster than primates and humans do. So we expect to have longer duration in humans than we do with mice. And we have this early data in a chronically infected chimpanzee, which is showing significant rapid reductions in viral load and antigenemia. This has occurred despite the fact that we are mismatched at one of the two siHBV, so basically we tied one hand behind the back, and we didn’t talk about that much, but this has been well tolerated with respect to clinical chemistries, clinical observations, so it has a prediction of effective dose in humans, and also of expected tolerability everything looks very good to us.

In my last slide, it’s just the clinical plan for ARC-520 because after all we are all about trying to get functional cures in the humans, not really in mice or chimpanzee and in that regard, our GLP toxicology is the in life phase is complete, we are just waiting for the histopathology and the toxicokinetics, so which we need to complete our regulatory submissions, but we’re looking for starting with a single dose raising tolerability study, in healthy volunteers. This would be a standard assessment of safety and tolerability, we are expecting our regulatory and IRB submissions to occur in the second quarter of this year. So coming up in the next few months we will obviously attempt to complete that trial as rapidly as possible because the real goal here is to get into single dose pilot efficacy in patients with chronic HBV. So that’s our real goal, get in there as fast as we can, I’ll get you in a second. Here the plan is to apply for ethics and regulatory permission in the fall. That of course requires that everything goes perfectly with that Phase 1 study, but that’s our goal at this point.

Importantly the chimpanzee study really allows us to predict the clinical dose in patients. So this is going to allows us on the back of the Phase I study in normal volunteers to start and what we think will be beginning efficacious dose and of course we’re going to follow all those same things, viral load, androgenemia, we’re going to determine the depth and duration of the fact that we achieve with a single dose and this will set up all the work we’re doing for multiple dose toxicity studies that will begin in the second half of this year. So that as soon as the single dose efficacy study is done is HBV patients we won’t be ready to go right into multiple dose studies which is where the real excitement I think – well it’s all going to be exciting. But that’s where we really want to see what’s going on with the immune system and whether how quickly we can get to functional cure if our expectations were correct that this is a path two.

So that’s it, so Lauren that was the question here. Thank you.

Lauren Glaser

We are happy to invite all our speakers Dr. Gish, Joan Block, Mr. Anzalone, Dr. Given, we have a feat up in front and you can take those, and then we’ll take questions.

Question-and-Answer Session

Unidentified Analyst

I have a couple of questions, first what were the acquisition terms for the compound?

Bruce Given

So the compound – well that’s a hard question, that was not a compound when we acquired the Roche assets. We acquired the entire Roche RNAi business in October 2011, that included a facility, that included a team, that included a number of licenses, as well as technologies. They had started some work on Hepatitis B program but there was not for instance a sequence selected. So we really developed that internally after the acquisition.

Now having said that Roche, we gave Roche preliminary rights for negotiations for a small number of (inaudible) that will come out of these assets and this is one of them. Other way that structure it is that to the extent that we want to partner candidate, we need to go talk to Roche and give them a short period of time to make an offer on a partnership or an acquisition of that candidate, once we receive that we can go talk to anybody we want and we can take any other deals we want or no deal. The only requirement is that we don’t take a deal that is lesser than what they put on the table.

Unidentified Analyst

All right, thanks. My questions for Dr. Gish, you mentioned the high cost of Hep B therapy particularly (inaudible) and Myriad. And I just wanted to get your thoughts on what the threshold would be for another premium priced app so once (inaudible) in 2015 goes generic and Myriad in 2018?

Robert Gish

So my expectations are when these two got two go generic, the prices at least in the US and Europe might drop about 20%, that’s the rule that I follow as key another players come into the environment. The generic cost overseas as much less than what you see in the U.S. and could be $30 to $50 per month level.

Interferon, which is really – I am going to put this more in the family of the interferon, that cost right now is $17,000 to $25,000 per patient treated, but it’s only one in five having an effective response. The cost for interferon globally ranges $2,000 to $12,000 per patient treated outside the U.S. and Western Europe. I think the cost threshold for a treatment like this that go theoretically four injections over four months monthly easily would be manageable and in western Europe and in U.S. in that $10,000 to $20,000 range easily manageable, and some decrement internationally depending on what scale you want to adjust for GDP.

I think the interferon sets the pace, that’s the price with a much higher efficacy. It’s possible that numbers can get much higher as you know what’s happened in the Hepatitis C space, right, Telaprevir for 12 weeks is $49,000. Our expectations for cidofovir for 12 weeks is going to be in the $70.000 to $90,000 range. So per patient cure with the fatal disease and a third of patients, the market tolerance for these higher priced limits is very substantial.

Joan M. Block

I wish I can add. I think I can’t remember if Dr. Gish mentioned this, but currently available therapies that are out there, the five oral nukes and those are only really effective for about 50% of the patients. So you have to remember, of all the patients only 50% of them are going to benefit from the currently available drug. So as a patient advocate, someone who talks to patients everyday, they are the tremendous need for other drugs out there. So I can’t remember if you mentioned that, if you want to elaborate.

Robert Gish

That’s a good summary.

Unidentified Analyst

A question for Chris and Bruce more from the development comment that you laid out for us. Is there a point when it’s going to make sense to seek a partner here, either because of cost of trials or ultimately to take it overseas, which is where the majority of patients are, you need a commercial partner at some point, but when do you think that makes sense, are we still little too early to be considering that?

Christopher Anzalone

That’s a hard question, that’s good question. The answer is at some point, this need to be partnered, we’re not going to develop a multinational sales force to sell this, doesn’t makes sense for us and there are a number of well-qualified large companies, large biotech as well as pharma that could effectively continue development certainly help us. The timing of that is difficult, we would be, as one could imagine, we are speaking with number of companies always. We want them to be up to date on the data, and clearly, they see the opportunities, when we actually do a partnership is not clear to us at this point. The cost associated with the first stage of this are fairly manageable, the Phase I in healthy volunteers is not terribly expensive. The single dose in patients also is not terribly expensive. And so we don’t feel like we need to do a partnership immediately, it’s more important for us to make sure we’re doing right kind of partnership.

Bruce Given

I think this was kind of asked before, but I just want to revisit and make sure I understand. So the difference between HCV and HBV in terms of cure, so I guess the first question is mechanistically, would it be fair to say that clearance of cccDNA would be required to real cure, and that may be part of the reason why HBV is more difficult to cure than HCV, and then if that’s the case, I think someone had mentioned it before that then the hope would be that you just press replication and allow clearance of sort of an host immunity clearance of cccDNA.

So the question there is cccDNA I don’t know – I don’t know my molecular biology, but just intuitively it seems like a more stable structure than RNA. So how easy is it to clear cccDNA like do we know like what the half life of cccDNA and the lipids versus our RNA in the cytoplasm.

So just to be very clear for everybody, Hepatitis C is curable in the absolute pure sense. These people clear virus 99.9% will never have a virus in their body the rest of their life even if they are immune suppressed, even if the worse possible thing happens to them unless they get re-infected. So C is an RNA virus, Hepatitis A is an RNA virus, Hepatitis E is an RNA virus all curable. B, we’re going to these increments. Right now we are at viral controlled because we can get DNA undetectable in 95% of patients. That’s our first level. The next phase we’re using is functional cure meaning DNA undetectable, s-antigen loss, normal liver biopsy, normal liver chemistry, taking that risk for cancer and cirrhosis down.

To get rid of cccDNA, you have to basically kill that liver cell. That clearance or that kill apoptosis whatever process you want to take place, could take place over decades with more aggressive immune control, immune surveillance, but the half life of cccDNA is the half life of the liver cell, and that depends on cell turn over people go months, years for that depending on what called the homeostatic mechanism is going on in the liver at a time.

So we’re going to use for this drug functional cure, hoping for real cure, but that’s we don’t want to be unrealistic or give you unrealistic expectations.

Robert Gish

Yeah, I like to kind of think of it’s like zoster like chickenpox and shingles, the disaster virus doesn’t go away. It’s stays there doesn’t cause any harm either unless and until it decides to reactivate and give you shingles, otherwise nobody goes on to develop cancer because of zoster or poor has organ failure because of zoster, unless they get dramatically immunosuppressed, and then it can be dangerous in a cancer study or something, but it’s like that, and I don’t think any of us worry too much that if we got exposed to chickenpox, we and zoster still hanging around, in the nucleus of our ganglion. It’s the reason to get immunized. My wife had shingles last year, and it’s no fun. But it’s not the real point is we don’t want cirrhosis and we don’t want hepatic cell carcinoma.

The fact that there are cccDNAs in the liver is not really an issue unless you wind up having to get treated for cancer or organ transplant for some other reason or something and now you are at risk of reactivating the thing, because your immune surveillance goes away just like you’re at risk of reactivating zoster or other herpes viruses. So I don’t think if you put yourself in that mindset, the fact that you’re going for functional cure is not a problem. It’s not like, will that sound really good enough. Sure, it is good enough, it’s not purest, perfect, but it’s absolutely good enough to reduce the risks that we care about.

Unidentified Analyst

Okay.

Bruce Given

Hope, you’re okay with this.

Unidentified Analyst

Maybe, one follow-up, how do you know that the 10% of cure or the functional cure isn’t a function of growth factors rather than viral levels in (inaudible)?

Robert Gish

So we know the natural history of Hepatitis B if you follow 1,000 or 10,000 patients long-term, we know the rate of S-antigen loss on a natural history untreated. And in Asian patients, it’s 0.5% per year. With the nukes, now we’re at 2% to 2.5% per year with entecavir and tenofovir, there is a profile that could be host, could be IL28 for instance or genotype, but we are amplifying S-antigen clearance that would not take place naturally. So we are interfering with the natural response in a positive sense, but it’s a small increment, we need a much bigger jump to move forward. We need to help that immune system further with much deeper knock down a viral replication, and these viral proteins. B-antigen and s-antigen are manipulating the immune system very actively everyday further darwinian response, darwinian survival of the virus.

Unidentified Analyst

Great. Thanks, I got three questions now; first maybe for Dr. Gish, and then last questions, first you mentioned looking at the other pipeline products and development HBV, you’ve seen in other lot of I mean kind of said that they probably not going to work, I mean on the effective side, which is wondering if there is something in more detail you could share about, why you don’t think some of these may work, and then my last two questions for Chris are, could you remind us from (inaudible) perspective what’s your create in operators in terms of technology, and then second just given the data you announced this morning as we look at the rest of the year, are there any other data then sort of catalyst for the company. Thanks.

Robert Gish

So there is two drugs in development that are in humans today that have a significant chance of making into the markets; one is BMS's lambda interferon, and that’s going to probably the 10% or 20% increment improvement over standard interferon, talking about 15% to 20% of viral control, it might be 30% with less side effects. So lambda we think globally we’ll get an indication for Hepatitis B in the next two years and there will be maybe an indication in the U.S., it’s a small incremental improvement definitely without side effects.

The other product that’s in humans now is the TLR-7 product that Gilead is working on that’s right now, and MAD, SAD Phase 1b program and there is data that Lanford also published, interestingly in the same chimp, that shows very interesting data in terms of viral knockdown. TLR7 activates the immune system and manipulates say a little different than interferon therapy and may have a chance also being a linear improvement as opposed to a logarithmic improvement. Those are the two short-term. Everything else on that list, either we don’t have enough data or it’s gone to the [bone yard] so to speak because of lack of efficacy or because of the adverse events.

Unidentified Company Representative

Okay, the first question relating to the intellectual property. I view that in two silos; one is delivery, one is chemistry. Within chemistry, we have got good coverage, we have an interference license from Alnylam. A part of our acquisition of the Roche assets included a broad license from Alnylam across multiple disease areas, what was not included in that was infectious disease, so we were back to Alnylam, we have a point license for Hepatitis B. We gave them in return a license to use DPC4 yet undisclosed target. So we’ve got – we think we have covered on the chemistry and that includes licenses from Isis and et cetera that have through Alnylam.

On the delivery side, we have got multiple layers of protection around the DPCs. For instance, we’ve got IP around the polymer backbone, we have got IP around the masking chemistries, we’ve got IP around this concept of using the two bipartite delivery system of siRNA not attached to the polymer. We have very fresh IP across those. We should have coverage into late over the next certainly 15 plus years, little more like 18, almost 20 years ago. So we feel we’re well covered on the IP side. Now, much of the question, it was bit right okay. So I think that this is an important year for us in large part because of HBV, that’s going to be our main catalyst driver I think this year. Bruce walked through our timeline for the clinic of getting into healthy volunteers, I mean getting into patients, I think those are big events for us. We’ll also have publications coming out this year on HBV as well as on other issues. I think all those are important catalysts.

The way I view this is both, as Dr. Gish and Ms. Block articulated. We’ve got a very large market opportunity and a very large in that need. There is no cure for Hep B, there’s a lot of people have it and there is an opportunity for functional cure and there is no one that we see on the horizon that can potentially provide that functional cure. So that’s the upside.

Now we’re in the risk mitigation business, because this is a risky business. And so everything that we do is looking for de-risking this program. I think we’ve done awful lot towards that. First, we have an awful lot of data on the safety profile of DPCs, we know that the tox will be driven by the delivery, not by the siRNA, a very good understanding in multiple rodents as well as now on primates. And so we’ve got a very good understanding about risk profile and we think that.

Now second efficacy, we’ve got these two siRNA sequences that give us broad coverage. We believe that we can with these two, cover 99.9% or thereabout of known HBV genotypes. So we should have good broad coverage. we then have substantial efficacy data and now two road models that transgenic and non-transgenic model, what we’ve seen there is I think something that no one had ever shown very rapid DNA knock down, very rapid and very deep s-antigen, e-antigen knock down, so I think that that suggest we have something that can potentially work in humans and then on top of that we have this chimp data, showing not only we have a good safety profile, we saw a very good tolerability with these two low doses. We also saw (inaudible), we saw again I think something that no one has ever shown, very rapid DNA knock down and deep S and E antigen knock down and that was with low doses, that were clean and so if we need to go higher I think that we could do that, but it’s just not clear if we need to do that.

So when I look at the boxes that we need to check the de-risking program, I think we checked them all, these are everything we can control and then right on top of that we got a very aggressive time schedule. We’re not talking about something that will be in humans in two year, it’s going to be in humans we think this summer. So we think all of that provides for the inventor an interesting 2013.

Unidentified Analyst

I have a question – practical question related to economics, with the vast preponderance of these patients in Asia, you mentioned Vietnam, well besides China you mentioned another Southeast Asian countries, I am wondering whether there is a precedence that has been set with hepatic cancer where the [ONYX] drug was a Pfizer drug. Really hasn’t gotten the huge response that some people actually thought might happen, what gives you the confidence that these countries are willing to spend the money to treat this disease which 10s and 10s of million.

Robert Gish

So honestly one thing, and then I will hand it over to experts. The way we look at this is we see this as a massive global opportunity, but we need to make sure that we can justify the program based solely on Western Europe and United States, we can do that, given a number of patients that are here. So I think that there is a very good business we had within those relatively speaking very small markets relative to the rest of the world.

Christopher Anzalone

I’ll pass aside to Joan for second, but remember, these are big markets in the U.S. and Europe relative to most since we develop drugs for, since most things don’t have 350 million patients in the world. But what you say, 1.4 in the U.S., or 2 million in the U.S., 14 million in Europe, 16 million patients in and what we think – that’s not including Australia, and also Canada and another places. Let alone, what you’re going to be able to do in the middle class in the ever exploiting middle class in Asia, even if it’s not going to actually achieve the ability to truly go after 150 million Chinese carriers for instance. So it’s still a massive market, but it’s easy to lose trap, just because of it’s almost so big, you lose the U.S. and Europe if you don’t pay attention to them directly.

Joan M. Block

And again, say from our experience in China, we have a huge outrage program, public health program and we know that there are over 1000 herbal remedies for liver disease and the Chinese are spending hundreds and thousands and millions of dollars on these herbal remedies, there is a real desire for real treatments, as they feel like there is a cure for Hepatitis B to prevent liver cancer, I think they are going to do it right now, in Haimen City, which is just outside of Shanghai. we have the government who have pledged $200,000 a year for the next three years to help cover treatment for their residents because liver cancer is such a huge problem. So, and also the central government as pledged $2 billion for Hepatitis B research. So they is a strong interest in trying to eliminate Hepatitis B, so in answer to your question I think there is a huge need and interest.

Bruce Given

I’ll just say middle class in Asia is much larger than the entire U.S. and Western European population, these people pay cash for their products, their medication they go for brand names, and the injectable issue is a non-issue, that’s part of their philosophy their culture in terms of therapeutic efficacy. So there is a market variance, sometimes it’s IP issues, sometimes there is regulatory issues, I agree that the Western European and U.S. markets big enough to justify this development, but I want everybody to keep thinking globally.

Lauren Glaser

I think with that we actually are out of time for questions, so if there is another (inaudible).

Christopher Anzalone

Thanks very much. I have a closing slide, but I think we’ve talked through all this. Thanks again for your interest and coming out.

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