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Arrowhead Promises RNAi Deal, Phase I in 2013 as Investors Voice Worries

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Arrowhead Research's top official this week said the company remains on track to complete a phase Ib trial of its sole RNAi drug candidate, the cancer therapy CALAA-01, around the end of the month, although he said that it has not been decided how the data will be made public.

During a conference call held to discuss Arrowhead's fiscal third-quarter financial results, President and CEO Chris Anzalone also confirmed previous guidance of at least one RNAi-related collaboration by the end of the first quarter of 2013 and the launch of a phase I trial of the siRNA-based hepatitis B treatment ARC-520 in the third quarter of next year.

However, the focus of much of the call was Arrowhead's financing efforts, notably a just-announced $6.2 million direct shares and warrant offering, as investors peppered Anzalone with questions and concerns over stock dilution.

CALAA-01 comprises unmodified siRNAs against the M2 subunit of ribonucleotide reductase delivered via Arrowhead's proprietary Rondel cyclodextrin-based polymer technology. After publishing positive phase I data in Nature in 2010, which showed that the intravenous drug could knock down its intended target mRNA and protein inside a tumor through an RNA interference mechanism (GSN 3/25/2010), Arrowhead decided to run a phase Ib study to examine adverse effects linked to the siRNA payload.

The follow-on trial was specifically designed to test whether low-dose pre-treatment could help desensitize patients to the effects.

According to Anzalone, that trial is set to wrap up “in a couple of weeks.” Even so, Arrowhead is not sure whether it will disseminate the study results in a peer-reviewed publication as it did before, through a direct announcement, or some other means, he said during the call.

Elsewhere in Arrowhead's pipeline, ARC-520 continues to make its way toward human testing, he said, noting that a pre-investigational new drug application data package was recently sent to the US Food and Drug Administration.

“We have put in place an aggressive development timeline for ARC-520, and anticipate filing an IND or foreign equivalent at the end of Q2 2013,” Anzalone said. A phase I trial in chronically infected HBV patients, to take place either in the US or abroad, is on track for the following quarter.

Meanwhile, Arrowhead continues to expect it will find its first partner for one of its RNAi programs by early next year, although the company has missed partnering guidance on more than one occasion in the past (GSN 5/19/2011 & 8/19/2010).

Anzalone said during the call that partnering in the RNAi field has been challenging in recent years — for his company, as well as its peers — in large part due to the belief that effective delivery options were not available.

However, “it feels as though that market is finally turning,” he said, pointing to the positive response to Alnylam Pharmaceuticals' strong phase I data for its TTR-mediated amyloidosis treatment ALN-TTR02 (GSN 7/19/2012).

“When [the market finally improves], we feel we are well positioned as a complete player with RNAi chemistry, freedom to operate, and a portfolio of delivery systems,” he added, noting that forthcoming deals are likely to bring in non-dilutive funding for Arrowhead.

“Those collaborations can take multiple structures, the least of which would be collaborations where a partner would provide financing of a development program and thereby decrease our burn rate,” he said. “But there is certainly the likelihood of … collaborations and partnerships … where there is economics on top of that.”

Despite such assurances, certain Arrowhead investors remained more concerned with the company's stock price, which closed at $3.39 last Friday but was around $2.85 in midday trading Tuesday after the company announced that it had entered a purchase agreement with certain institutional and individual investors for $6.2 million in common stock and warrants.

Under the arrangement, Arrowhead will sell 2.3 million shares, plus warrants for another 1.7 million shares, in units priced at $2.76 each. Units will consist of one share of common stock and a warrant to buy 0.75 shares of common stock.

The warrants have an exercise price of $3.25 per share, with a four-year term beginning six months from the time the offer closes.

Among the concerns voiced by investors during a question-and-answer session on the conference call was that the stock offering will trigger additional dilution of the company's stock, and that it provides less than a quarter's worth of cash based on the company's fiscal third-quarter financials.

Anzalone said that Arrowhead views the size of the financing as “right” given that the company maintains a deal with investment group Lincoln Park Capital to draw on a $14 million financing commitment at its discretion, based on closing market prices.

Going forward, “we … feel confident that we have what we need to bring in non-dilutive capital,” Anzalone said. “We have reacted well to the changing capital market environment. At the same time, have been able to bolster our underlying assets so that when the RNAi market does turn [for the better], we are well positioned for it.

The Fiscal Third Quarter

For the three-month period ended June 30, Arrowhead reported revenues of $47,917, compared with zero revenues in the year-ago period.

Operating expenses surged to $6.9 million from $1.8 million, in part reflecting the impact of its Madison, Wis.-based RNA drug operations acquired from Roche late last year (GSN 10/27/2011).

Net loss in the quarter jumped to $8 million, or $0.71 a share, from $1.8 million, or $0.25 a share, in the same period a year earlier. Arrowhead noted that the net loss for this year's fiscal third quarter was based on the more than 11 million weighted average shares the company has outstanding, compared with the approximately 7 million shares the year before.

As of June 30, Arrowhead had cash and cash equivalents of $2.3 million.

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