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Calando May 'Scale Back' RNAi Rx Development as Parent Firm Faces Cash Crunch

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As questions linger over its ability to continue operations, Arrowhead Research may instruct its subsidiary Calando Pharmaceuticals to slow the development of its clinical drug candidates which include the phase I siRNA-based cancer therapy CALAA-01, according to a company filing with the US Securities and Exchange Commission.

The news comes just months after the firm said that Calando would not advance any of its preclinical programs, including one centered around a second RNAi cancer drug called CALAA-02, into human studies until Arrowhead can strike a money-generating deal for the subsidiary (see RNAi News, 12/18/2008).

Arrowhead’s “fiscal 2008 operating losses and negative cash flows from operations [have] raised doubts about its ability to continue as a going concern over the next 12 months and beyond,” the company said in the filing, which was released this week.

As such, “no funding of new initiatives or further investment in minority positions is contemplated unless additional cash is obtained … [and] depending on cash inflows and outflows, the company will scale back development efforts on Calando’s clinical candidates,” Arrowhead added.

President and CEO Christopher Anzalone struck a more positive chord in a conference call held this week to discuss the company’s fiscal first-quarter financial results, saying that Arrowhead continues to pursue a number of opportunities that could give Calando a much-needed infusion of cash, including one or more industry partnerships or direct investments into the subsidiary by third parties.

“Let me be clear, we are moving aggressively down all of these roads and we have significant traction in everyone of them,” he said during the call. In the SEC filing, Arrowhead noted that Calando is engaged in “ongoing discussions with multiple potential partners and acquirers,” although it added that it can offer “no assurance regarding if or when a transaction might be concluded.”

Along with another of Arrowhead’s subsidiaries, Calando is “on the cusp of breakthroughs and partnerships,” and Arrowhead’s focus over the next “six to nine months [is] to make sure that we can provide the capital that they need,” Anzalone said. “We are confident that we can do that.”

Calando was originally established to be a standalone RNAi drug developer using the technology of Arrowhead subsidiary Insert Therapeutics (see RNAi News, 2/25/2005), but the companies were merged last year under the Calando banner as part of Arrowhead’s effort to trim costs (see RNAi News, 10/23/2008).

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During this week’s call, Anzalone said the Rondel system would be a likely driver of any potential deals, noting that the delivery technology represents “something that the pharmaceutical industry needs … [to] overcome the problems associated with systemic delivery of siRNA and [can] contribute to the wider adoption of RNAi therapeutics.”

However, a key demonstration of the delivery technology’s capabilities — the ongoing phase I study of CALAA-01 — faces an uncertain future as Arrowhead balances a limited cash supply with the needs of its various business units.

“CALAA-01 remains ahead of schedule in phase I clinical trials in patients with solid tumors,” Anzalone said this week, “and I am pleased to report that the trial continues to progress well.”

Still, “if Calando is unsuccessful in attracting additional capital and Arrowhead does not have sufficient cash resources to support Calando’s operations, some or all of Calando’s development projects will have to be scaled back, interrupted, or abandoned in order to manage cash so that Calando can conduct limited operations through fiscal 2009 and into 2010,” Arrowhead cautioned in its SEC filing.

At the same time, “it is not possible at this time to accurately determine the final cost of Calando’s development projects [or their] completion dates,” the company added.

Officials from Arrowhead were not available for additional comment in time for this publication.

Fiscal Q1

For the three-month period ended Dec. 31, 2008, Arrowhead reported a net loss of $8 million, or $0.19 per share, compared with a year-ago loss of $5.2 million, or $0.14 per share.

Revenues in the quarter rose to $700,000 from $400,000 the year before, while operating expenses jumped to $9.4 million from $7.1 million. According to Arrowhead CFO Paul McDonnel, the cost increase was largely due to the decision “made earlier in the fiscal year to pursue [development of] … CALAA-02.

“CALAA-02 demonstrates the Rondel system’s ability to move quickly into the clinic,” he said during the conference call. “However, moving quickly comes at a cost. During the quarter, Calando incurred non-recurring costs … for CALAA-02 totaling approximately $1.3 million.”

As of Dec. 31, Arrowhead had about $7.6 million in cash, and burned between $2.2 million and $2.6 million per quarter during fiscal 2008. During the conference call, Anzalone said that “we believe we have sufficient capital on the books and opportunities that we can get to the end of the year and into [fiscal] 2010.”

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