Arrowhead Research Corporation's CEO Discusses F3Q12 Results - Earnings Call Transcript

Arrowhead Research Corporation (ARWR)

F3Q12 Earnings Call

August 13, 2012 4:30 p.m. ET

Executives

Michael Levitan - IR

Christopher Anzalone - President and CEO

Ken Myszkowski - CFO

Analysts

Donald Hutchinson - Safe Harbor Financial Management

[Lee Alper] - Hammock Investors

James Cash - [Poterhead] Pharma

Presentation

Operator

Good afternoon, and welcome to the Arrowhead Research Corporation fiscal 2012 third quarter conference call. [Operator instructions.] I would now like to turn the conference over to Mr. Michael Levitan of the Trout Group. Please go ahead sir.

Michael Levitan

Thank you, operator. Good afternoon everyone, and thank you for joining us today to discuss Arrowhead's results for its fiscal 2012 third quarter ended June 30, 2012. With us today from management are President and CEO Dr. Christopher Anzalone, and Chief Financial Officer Ken Myszkowski. Management will provide a brief overview of the quarter and will then open the call up to your questions.

Before we begin, I would like to remind you that comments made during today's call may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact, including without limitation those with respect to Arrowhead’s goals, plans, and strategies, are forward-looking statements.

Without limiting the generality of the foregoing, words such as may, will, expect, believe, anticipate, intend, could, estimate, or continue, or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements.

In addition, any statements that refer to projections of Arrowhead’s future financial performance, trends in its businesses, or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements represent managements’ current expectations and are inherently uncertain.

You should also refer to the discussions under Risk Factors in Arrowhead’s Annual Report on Form 10-K and the company’s quarterly reports on Form 10-Q for additional matters to be considered in this regard. Thus, actual results may differ materially. Arrowhead undertakes no duty to update any of the forward-looking statements discussed on today’s call.

With that said, I’d like to turn the call over to Dr. Christopher Anzalone, president and CEO of the company. Chris?

Christopher Anzalone

Thanks, Michael. Good afternoon, everyone, and thank you for joining us on our call today. Let me start by mentioning two announcements. First, we will issue a press release before the market opens tomorrow that we have entered into an evaluation agreement with Merck, whereby they will assess a novel, proprietary antibody against an undisclosed target identified in the human-derived peptide targeting and discovery program, which we acquired in the Alvos transaction.

We are very excited about Merck’s interest in this program, and we believe there will be many more opportunities to extract value from our portfolio by partnering with biopharma companies in areas such as this.

The timing of this is also important. We believe that entering into a collaboration with a company of Merck’s stature so soon after acquiring the platform is a tremendous point of validation. We look forward to working with Merck on this and other projects. We also look forward to entering many more collaborations stemming from our targeting library.

The other announcement I’d like to touch on is that of our financing. We raised approximately $6.2 million in our offering that was oversubscribed. We believe this was the correct size, because it provides us with needed capital while limiting dilution for our existing shareholders. We feel comfortable with our current capitalization given this new financing, the fact that we still have $14 million in our facility with Lincoln Park Capital, and the stage of development of our technology platforms.

Also important in the current financing is the investor group. Approximately half of the funding was provided by current shareholders led by noted investor Jim Mellon and the other half was provided by a large healthcare fund. We believe the quality of these investors speaks well of Arrowhead.

Moving to our business, as you know last quarter we acquired Alvos Therapeutics and the platform of homing peptides originally developed at the M.D. Anderson Center in Houston, Texas. I’d like to spend a few moments to talk about what this means for our business and how it has changed the way we position our company to analysts, investors, and potential partners.

The Alvos acquisition completes Arrowhead’s transition into a targeted therapeutics company. We are focused entirely on bringing drugs to where they can be effective and to nowhere else. The identify of actively targeting drugs is potentially quite powerful. Guiding drugs to their intended site of action offers the promise of increasing the effectiveness of a drug while also increasing safety by limiting off-target effects.

Oncology is a prime example of the potential value of targeting. Most oncology drugs have severe side effects that make patients sick and limit how much can be administered. This is largely a targeting problem, because cytotoxics are essentially poisons that can kill healthy tissue as well as cancer cells.

In fact, it is thought that only a vanishingly small minority of drugs actually get to tumors, while the vast majority goes to healthy tissue. If we can guide those drugs specifically to tumors, we can increase the effectiveness, decrease side effects, and potentially increase the tolerable dose. The value of this is most obvious in oncology, but similar value could also be seen in other indications as well.

This has been a key goal in the pharmaceutical industry for years, and we believe we have something revolutionary in our platform of targeting sequences. Let’s review quickly what that is. Phage display is an established method of discovering novel cell surface receptors and short peptide sequences that are rapidly internalized by various cell types.

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