Arrowhead provided details on its clinical trials during Q2 conference call.

The company once again emphasized that ARC-520 was never intended to be a single-dose therapy.

Wall Street seems to be once again creating false expectations ahead of Analyst Day.

Arrowhead (NASDAQ:ARWR) reported its second-quarter financial results after market close on Tuesday, and provided more clarity on its clinical trials during the post-earnings conference call. The company also said that it will provide data from the ARC-520 clinical program and non-clinical chimp study on September 24th at its Analyst and Investor Day. Detailed data on the chimp study is more likely to be available at AASLD in November. ARWR shares rose sharply on Wednesday as sentiment turned bullish on the stock and possibly due to a short squeeze. Amid the euphoria though, Wall Street seems to be once again creating false expectations ahead of the Analyst Day in September. Long-term investors would be well served to avoid the false expectations trap and focus on what the management said during the second-quarter conference call.

Clinical Trials Details

ARWR currently has multiple studies of ARC-520, with some of them ongoing and some being initiated. In the conference call, ARWR provided more clarity on each of these trials.

ARWR is currently conducting a Phase 2a study in Hong Kong called Heparc-2001. This is a multicenter, single dose escalation study in subjects with chronic immune active HBV maintained on entecavir therapy. The trial initially had four cohorts, who received doses of 1-4 mg/kg. Three more cohorts were added, and ARWR will provide the details of the three new cohorts and overall results from all the seven at its Analyst Day.

There is also a Phase 2b study called Heparc-2002, which is a multicenter, multi-dose study to determine the depth of Hep B surface antigen reduction. The study combines ARC-520 and entecavir or tenofovir in patients with HBE antigen negative chronic HBV. The subjects are administered with four doses every four week of either 1mg/kg of ARC-250, or 2 mg/kg or placebo. There is a similar study, Heparc-2003, in HBE antigen positive chronic HBV patients. Heparc-2002 is being conducted in Germany and Hong Kong, and the company plans to open additional sites in Rome and South Korea. Heparc-2003 has been approved in Germany and Hong Kong, and is awaiting approval in South Korea.

Heparc-2004 is being conducted in the U.S. This is a multicenter, multi-dose trial to determine the depth of Hep surface antigen reduction. The study will enroll 12 patients, who will either receive 1 mg/kg of ARC-520 or placebo. The patients will receive a total of three doses every four weeks.

In addition to these, there are three more studies being planned; Heparc 2006, 2007, and 2008. The 2008 study will be known as the Monarch study and will be the most important as it will determine the dosing regimen and combinations. The Monarch study should begin in the fourth quarter.

While ARWR did not disclose any data from the ongoing clinical trials, it has given a clear roadmap for the clinical development of ARC-520.

I read many conference call transcripts and listen to webcasts. One major sign of a healthy company is a clear cc. ARWR's cc was extremely clear and comprehensive. I am veyr happy with what was stated, and how it was stated. However....

Building False Expectations, Again

Much of the bearish sentiment around ARWR was built due to unrealistic expectations. The company has since emphasized that ARC-520 was not intended to be a single-dose therapy. In fact, this is where the Street seems to have gone wrong with ARWR. Even after the second-quarter conference call where the company provided clarity on each of the ongoing and planned clinical trials, analysts built false expectations.

The false expectation is centered around results of the single dose phase 2a Hong Kong study of ARC-520, specifically percentage of 1 long reduction of S antigen. ARWR has repeatedly said that ARC-520 is not meant to be single dose, this study was conducted, as Bruce Given, ARWR's COO, said, simply to "... give us an indication of early activity and determine tolerability in a patient population." Whether a single dose gave good efficacy results is irrelevant; that is for the multidose study to determine. I am buoyant about the single dose results simply because it tells me the potential of multidosing. The street is making a mistake if it takes this as conclusive.

For example, RBC Capital Market analyst Michael Yee, despite attending the c, said in his research note, "Management plans to provide new high-dose 3-4mg single dose cohort data on September 24th- but we don't think will impress (as most investors agree) towards anywhere near 0.8-1log reduction S antigen, and that's why ARWR has gone to look at 3 more different cohorts (undisclosed) and the strategy is focused on multiple doses- not a single dose." (I don't have the research note, took this quote from the message boards.)

I believe, assuming that quote is correct, that Yee is once again making the same mistake the Street made last time. ARWR's strategy of multidosing wasn't made as a result of any "unimpressive" phase 2a results. Multidosing was the strategy all along.

Trading ARWR Ahead of Analyst Day

On Wednesday, ARWR shares soared, possibly due to a short squeeze. As I noted, the company did not disclose any data from the ongoing trials (mainly because 3 mg and 4 mg cohorts in Phase 2a are blinded), but Wednesday's move in the stock indicates a major shift in sentiment. The move has been accentuated by a possible short squeeze. As of July 15th, more than a quarter of ARWR's total float was shorted. But the short sellers were already quite stretched then as the days to cover was significantly high at 18. The shift in sentiment has likely led to short sellers running to close their positions.

There might be further pain for short sellers though as ARWR will form a "golden cross." Technical traders see this as a bullish signal and I won't be surprised if we see another spike this week in ARWR shares.


ARWR crossed $7 on Wednesday before paring some of its gains. There could be another spike like the one seen on Wednesday but I still think this is a good time for long-term investors to build positions. I am.

Relevant quotes from the conference call

Broad statements:

We believe that our work represents a real advance for the HBV field and has helped us move our program forward.

ARC-520 was never intended to be a single-dose therapy. We are eager to assess its activity after multiple doses and compare those results to results from our long-term chimpanzee study.

About ARC-F12, new study to begin:

ARC-F12 is designed to reduce the production of factor XII that potentially treat both thrombosis and angioedema. We are pleased to announce today that ARC-F12 has been nominated as our next clinical candidate.Based on this work, we expect to file an IND or equivalent for ARC-F12 in 2016.

Details about ARC-520 trials, very important:

Heparc-2001 is a multicenter, single-dose escalation study of ARC-520 administered to patients with chronic immune active HBV infection maintained on entecavir therapy. This is the ongoing study that we typically referred to as our Phase 2a study as being conducted in Hong Kong. There were four initial cohorts who have received ARC-520 doses of 1, 2, 3 or 4 mgs per kg, and then an additional three cohorts were subsequently added.

We plan to discuss what these three new cohorts are and overall results from all seven cohorts at our Analyst Day in September. This study is designed to give us an indication of early activity and determine tolerability in a patient population.

Heparc-2002 is a Phase 2b multicenter, multidose study to determine the depth of hepatitis B surface antigen reduction following ARC-520 in combination with entecavir or tenofovir in patients with HBE antigen negative chronic HBV.

It is a parallel design study with patients receiving four doses once every four weeks of either 1 mg per kg of ARC-520, 2 mg per kg of ARC-520 or placebo. This study has received regulatory approval to begin in Germany and Hong Kong. And we intend to also open additional sites for Rome and South Korea, pending approval from regulatory authorities and institutional review boards.

The goal is to assess, multidose activity as measured by reduction in circulating surface antigen in addition to other measures. Heparc-2003 is similar to 2002 but will enroll patients with HBE antigen positive chronic HBV. So they are sister studies. It has also received regulatory approval in Germany and Hong Kong and is also pending approval in South Korea.

Heparc-2004 is a multidose repeated -- multicenter, excuse me, multicenter repeated dose study to determine the depth of surface antigen reduction following ARC-520 in combination with entecavir or tenofovir in patients with chronic HBV, which is being conducted in the U.S.

This study is planned to enroll up to 12 patients, receiving either one mg per kg of ARC-520 or placebo. Each patient will receive three total doses once every four weeks. The goal is to assess, multidose activity as determined by reduction in surface antigen in addition to other measures such as assessing for any effects on entecavir or tenofovir pharmacokinetics with administration of ARC-520.

Heparc-2005 was designed as a study in HBE antigen positive patients in combination with entecavir or tenofovir. This study was planned to enroll at a single site in Australia. It was closed before enrolling any patients to make way for a new study, Heparc-2008, which I'll discuss in a moment.

We also have Heparc-2006 and 2007, which are multidose studies that are in the late planning stages. We will provide additional details on these studies when their plan is matured. Heparc-2008, which will be known as the MONARCH Study is intended to be a study of various dosing regimens and combinations. It is quite similar to the approach taken by Pharmasset in the HCV field.

It will have a flexible iterative design, so we can ask specific questions about ARC-520 in small open-label cohorts and quickly initiate additional cohorts based on the answers that we get or the availability of new agents to be tested in combination. Our goal is to begin MONARCH as soon as possible. And we currently believe that we will be able to initiate the study in the fourth quarter. Stay tuned for more information about this study as we consider it very important.

There is also one important, ARC-520 preclinical development program worth mentioning. We have completed our six-month rat and nine-month primate GLP toxicology studies for ARC-520 without any perceived change in the safety profile. The availability of these data clears the way for a year, or more of treatment with ARC-520 from a toxicology testing perspective. This is all the ARC-520, completed in ongoing studies. I hope it is helpful to have the descriptions and study numbers.

Before I talk about highlights from the quarter, I want to announce our plan to hold an Analyst and Investor Day on September 24, 2015 to discuss our 520 in detail and provide data from the clinical program and from a non-clinical study in chronically infected chimpanzees.

We've learnt a great deal of our ARC-520 and the biology of hepatitis B during the course of our chimpanzee study that spanned over a year, as well as from our Phase 2a clinical study. As we discussed in our last conference call, the Phase 2a include four cohorts at doses 1, 2, 3 and 4 milligrams per kilogram and was then expanded to include three additional cohorts.

These additional cohorts were designed to test some of the hypothesis that emerged from our research program, including the chimp study. We think the format of an Analyst Day will allow us to provide a more comprehensive overview of what we're learning than if we simply provide a topline results in a press release.

Takeaway from this article and the conference call

Don't listen to the street. I have valued ARWR elsewhere. ARC-520 alone is more than what the market is valuing it now.

The most important takeaways from the cc are - one, the clear enunciation that ARC-520 isn't a single dose study, which responds to the market overreaction to the phase 2a data, two, a clear statement on ongoing trials, and three, most important, I believe they are about to release some interesting data on September 24, as I understand from the last 3 paragraphs quoted above. I believe they have this data from the additional cohorts already, and have planned a bigger platform to announce that. Consider that, after cohorts 1-4, what other cohorts can there be except larger cohorts? If I am correct, we are going to get larger dosage tolerability and probably efficacy data. I have always thought that larger dosage would be important here - let's see if I was right on September 24.

That data must be momentous!