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Beleaguered Arrowhead 'Cautiously Optimistic' About RNAi Deal, Closes Calando's Lab

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By Doug Macron

This story has been updated to include details about Arrowhead's compliance with the Nasdaq's minimum stockholders' equity requirement.

Arrowhead Research's top official this week said that the firm's Calando Pharmaceuticals subsidiary continues to look for a partner for its RNAi drug-delivery system and clinical candidate, and that he is "cautiously optimistic" that pending phase I data on the drug will help drive a deal.

At the same time, Arrowhead has taken additional steps to cut costs related to Calando, and disclosed in a filing with the US Securities and Exchange Commission that it has shifted all its development efforts onto another of its subsidiaries, while shutting down Calando's laboratory.

"We have been clear about our desire to partner [the phase I siRNA-based cancer drug] CALAA-01 and [Calando's] Rondel [delivery] platform with a company capable of bringing multiple therapeutics through the clinic into the market," Arrowhead President and CEO Christopher Anzalone said this week during a conference call held to discuss the company's fiscal third-quarter financials.

"We believe that because this platform is not partnered early in its development, companies would rather wait to see clinical data rather than making a deal based on preclinical animal data that they were not involved in generating," he added. "Given where we are in the clinical trial, we are cautiously optimistic that we may be entering a period where multiple companies would have heightened interest."

Calando was originally established by Arrowhead in 2005 to commercialize an RNAi-delivery technology under development at another of its many subsidiaries, Insert Therapeutics (see RNAi News, 2/25/2005). As a pure-play RNAi shop, Calando advanced its siRNA-based cancer drug CALAA-01 into phase I testing, but last year Arrowhead decided to merge Calando and Insert in order to trim costs (see RNAi News, 5/1/2008).

Arrowhead continued to struggle financially, and in late 2008 said it would not advance any of Calando's preclinical therapeutics, including a second siRNA-based cancer drug, into the clinic until some sort of money-making deal could be struck (see RNAi News, 12/18/2008). Earlier this year, the company disclosed that it would also stop developing CALAA-01 once an ongoing phase I study had concluded and had halted all preclinical research and development (see RNAi News, 5/21/2009).

Last month, Arrowhead found some success on the partnering front, out-licensing the worldwide rights to a non-RNAi delivery technology and a related drug, both of which had been under development at Insert, to Cerulean Pharma (see RNAi News, 6/25/2009).

And while that deal provided some much-needed cash, a difficult economy has led Arrowhead to now place all of its "development efforts" on another of its subsidiaries, leaving Calando to focus on "partnerships and licensing," according to a company filing with the SEC.

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As part of that move, "Calando has closed its Pasadena, Calif., laboratory facility and plans to outsource laboratory development, as needed," Arrowhead noted in the filing.

Still, the phase I trial of CALAA-01 proceeds, and Anzalone said during the call that the drug "continues to be well tolerated with no drug-related serious adverse events reported." At the same time, the study is nearing its end and is "now entering the therapeutic dose range, and we have seen some exciting preliminary data."

Anzalone did not provide additional details about the trial or data, but said that as the trial's results are verified, the company will announce "additional findings."

Fiscal Q3

For its fiscal third quarter ended June 30, Arrowhead reported a surge in revenues to $2.6 million from $200,000 in the year-ago quarter, an increase resulting from a cash payment of $2.4 million from Cerulean related to the company's deal for the Insert technology.

Operating costs dropped more than 50 percent, to $4.9 million from $10.1 million, reflecting Arrowhead's overall cost-cutting efforts across all its subsidiaries, while the firm trimmed its net loss by more than 66 percent to $2.5 million, or $0.06 per share, from $7.5 million, or $0.19 per share.

At the end of June, Arrowhead had cash and cash equivalents totaling $1.9 million.

After the close of the quarter on June 30, Arrowhead closed a financing to gross $2.76 million. "Even with this infusion of additional capital, the company will still need to obtain more capital to meet its operating needs for fiscal 2010 and beyond," it noted in the SEC filing.

"The company is generating no significant revenue, and its fiscal 2009 operating losses and negative cash flows from operations raises doubts about its ability to continue as a going concern over the next 12 months and beyond," it added.

There was some good news coming out of Arrowhead this week, when the company announced that it has regained compliance with the Nasdaq Stock Market's $2.5 million minimum stockholders' equity requirement for continued listing on the exchange.

"Several recent accomplishments have considerably strengthened our balance sheet, including [the Cerulean] partnership … and a successful financing for Arrowhead," Anzalone said in a statement.

Last month, the company announced that it had signed agreements to sell at least $2 million in stock and warrants to certain institutional and accredited investors (see RNAi News, 7/16/2009).

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