WB: $ALNY $ABUS $ARWR Alnylam Failures Have Limited Read-Through to Arrowhead, Arbutus;
Arrowhead and Spring Bank to Collaborate
Alnylam (ALNY $36.21) recently reported two failures from its RNA interference
(RNAi) pipeline: ALN-AAT, a Phase I/II candidate for alpha-1 antitrypsin deficiency
(AAD) associated liver disease, and revusiran, a candidate that was in Phase III
development for hereditary amyloidosis with cardiomyopathy. As expected, the
market reacted negatively to the news, which also affected other companies in the
RNA therapy space. Given data to date, we believe read-through to Arrowhead and
Arbutus is likely limited. We discuss the implications of Alnylam’s recent failures on the
two RNAi companies under our coverage, Arbutus and Arrowhead, below.
 Safety remains a concern in for RNAi-based therapies, and multiple-dosing data
will be key for both Arrowhead and Arbutus. Development of both ALN-AAT and
revusiran were halted due to drug-related adverse events: ALN-AAT led to dosedependent
elevations of liver transaminases, and patients treated with revusiran
demonstrated a higher rate of mortality compared with placebo. Both ALN-AAT and
revusiran are based on GalNAc-conjugated, subcutaneous delivery formulations. It is
unclear whether the toxicity came from the delivery system, the trigger sequence, or
the combination, or if it is due to the specific disease conditions being targeted. Both
Arrowhead and Arbutus use different methods of RNAi delivery for their respective
investigational agents, with safety having been validated in hundreds of patients to
date. Data readouts from Arbutus and Arrowhead’s ongoing clinical programs are
expected throughout the next 6-12 months, and multiple-dosing data will be key to
providing an adequate comparison in efficacy and safety, in our opinion.
 Fall of ALN-AAT may not bode well for ALN-HBV, Alnylam’s investigational RNAi
therapy for the treatment of HBV, a competitor to Arrowhead’s and Arbutus’s
HBV programs. The next data readout for ALN-HBV is expected in mid-2017 and
will determine its place in the HBV data showdown. Like ALN-AAT, ALN-HBV is
subcutaneously administered and based on the company’s Enhanced Stability
Chemistry (ESC) platform and conjugated to the GalNAc delivery system for targeted
delivery to the liver. The finding from the discontinued Phase I/II program that ALNAAT
led to greater instances of dose-related liver transaminase increases may
increase the likelihood that HBV patients, who are already sensitive to liver injury,
also react in a similar manner to ALN-HBV. Initial single-dose data, and potentially
multidose data, are expected for ALN-HBV around mid-2017.

Failure of ALN-AAT also eliminates Arrowhead’s only competition in AAD; interim data from Arrowhead’s ARC-AAT is expected at AASLD in November. As discussed above, Alnylam’s Phase I/II ALN-AAT trial was halted due to three instances of dose-related transient elevations of liver transaminases in the highest dose groups. Alnylam considered these elevations to be sequence-specific and has gone back into preclinical testing to select a new sequence, setting the program back for at least two years, in our opinion, and temporarily eliminating the only competition for Arrowhead’s ARC-AAT, intended for the same indication. Arrowhead has submitted a late-breaker abstract with updated clinical data for ARC-AAT to the American Association for the Study of Liver Diseases (AASLD) annual conference (November 11-15, Boston). Management previously noted that so far, there had been no differences detected in liver enzyme levels or any other laboratory parameters other than desired reductions in AAT between placebo and ARC-AAT treatment groups. We note that only 35 subjects have been exposed to ARC-AAT to date, and we await additional dosing data in a larger patient population to further assess the safety of ARC-AAT.
 Arrowhead’s RNAi program is based on the company’s proprietary dynamic polyconjugate (DPC) delivery system, which is being validated with the ARC-520 and ARC-521 programs, demonstrating efficient delivery and potent knockdown of HBV targets, as well as adequate safety in nearly 200 human subjects. Multiple-dose studies are in progress with data expected in first half 2017. In our talks with Arrowhead, management has stated that no liver enzyme elevations have been observed with HBV candidates ARC-520 and ARC-521 among HBV patients. To date, approximately 150-200 human subjects, including healthy volunteers and patients, have been exposed to ARC-520, and 25 to ARC-521. Data from single- and multiple-ascending dose studies with ARC-521 are expected in early 2017, followed by multiple-ascending dose data from ARC-520 around mid-2017.
 Arbutus’s lead asset, ARB-1467, for the treatment of HBV, is based on a lipid nanoparticle (LPN) delivery system, which has demonstrated clinical safety in hundreds of patients. Three-dose data from the first cohort in Arbutus’s Phase II ARB-1467 was recently announced, demonstrating a stepwise decrease in HBsAg with each dose and no safety issues reported. ARB-1467 is an RNAi therapeutic that leverages Arbutus’s validated LNP delivery system to efficiently release three RNAi triggers into infected hepatocytes to silence HBV product transcription. To date, nine LNP products have entered clinical trials with hundreds of patients treated, some with over one year of repeat dosing, strongly validating the safety of LNP RNAi technology. Data recently announced by the company showed that six patients receiving ARB-1467 in cohort 1, the lowest dosing cohort, had a mean maximum drop of HBsAg of 0.4 logs after a single 0.2 mg/kg dose of ARB-1467 and 0.7 after three monthly doses, with HBsAg decreasing in a stepwise fashion with each dose. Conceivably, the S antigen drop would continue with additional dosing. Multiple-dose data from the second cohort, receiving 0.4 mg/kg ARB-1467, is expected in the fourth quarter.
 We compare and contrast data known to date with ARB-1467 and ARC-521 in exhibit 1; a full data showdown between the two HBV RNAi programs is expected in early 2017. In e+ and nuke-naive patients, ARC-520, the first-generation candidate from Arrowhead, demonstrated a 1.5 log S antigen knockdown after a single dose, and we believe ARC-521 should at least match such efficacy in e+ patients. ARB-1467 will report out data from e+ patients in early 2017. In e- and nuke-experienced patients, ARB-1467 showed a 0.3-0.4 log drop in S antigen after a single dose, and 0.7 log drop after three doses. We will see data from ARC-521 single- and three-dose data in early 2017 in e- patients. We note that an ARC-521 surrogate led to a 3 log drop in e- chimps after multiple doses, which was impressive, in our opinion. If the correlation between the chimp and human data seen with ARC-520 holds for ARC-521, we may see a multi-log reduction in e- patients after multiple doses of ARC-521 in the clinic, which would be superior to that seen so far with ARB-1467. The full data showdown in early 2017 between the two programs will dramatically drive both shares, in our opinion.
Separately, on Thursday, October 6, before markets opened, Arrowhead and Spring Bank announced a strategic collaboration for the co-development of each company’s lead assets for the treatment of chronic HBV. We see this collaboration as a strong positive for both companies, as we believe the combination of complementary mechanisms that include direct antiviral and immune-modulating components are key to achieving a cure for chronic HBV. The companies seek to combine Spring Bank’s SB 9200, an immunomodulatory agent, with Arrowhead’s ARC-520, an RNA-based therapy designed to silence HBV gene production, along with an approved nucleotide/-side (nuke) polymerase inhibitor, to potentially create a curing regimen. Under the agreement, Spring Bank and Arrowhead will conduct preclinical research with both agents in combination before moving to the clinic. Arrowhead will then add an additional cohort to the company’s ongoing Phase IIb Monarch study, in which patients will receive a dosing regimen that includes ARC-520, SB 9200, and a nuke.
 RNAi + immune booster + nuke could be a winning formula to achieve HBV cure. RNAi agents such as ARC-520 shut down transcription of HBV gene production, thereby abolishing all viral protein products and cutting off the

replenishment of HBV cccDNA, a core component of viral replication and persistence. By pairing RNAi agents with an immune booster, such as SB 9200, the clearance of remnant infected hepatocytes can be accelerated, and a cure might be achieved. Adding a nuke helps further quench viral replication.
 Design of the Phase II Monarch study. Arrowhead’s Phase II Monarch trial, also called Heparc-2008, began in first quarter 2016, and is the first trial to investigate potential synergies among combinations of HBV agents. Monarch is a multicenter, open-label study comparing ARC-520 monotherapy with various combinations of ARC-520 and other therapies to treat chronic HBV. The primary outcome measure is the percentage of patients achieving a 1 log reduction in hepatitis B surface antigen (HBsAg) compared with baseline. Secondary outcome measures include the percentage of patients achieving HBsAg loss, time to HBsAg loss, percentage of patients achieving anti-HBs seroconversion, and other outcome measures. The trial is designed to be iterative, allowing for the addition of further cohorts when new agents are available to study in combination with ARC-520.
Risks to our Outperform rating on Arrowhead include: 1) Clinical failure of ARC-520 and ARC-521; 2) a changing competitive landscape that renders Arrowhead product candidates uncompetitive; 3) clinical risks in ARC-AAT and other programs; 4) intellectual property risks; 5) business development setbacks; and 6) financing risks.
Risks to our Outperform rating on Arbutus include: 1) failure of Arbutus to commercialize a curative HBV regimen; 2) a changing competitive landscape that renders an Arbutus combination uncompetitive; 3) intellectual property risks; 4) business development setbacks; 5) reimbursement risks; and 6) financing risks.
Risks to our Outperform rating on Spring Bank include: 1) clinical risk of the Phase II program for SB 9200 in CHB; 2) clinical risk of the SB 9200 program for other viral diseases; 3) regulatory risk; 4) long-term safety profile for SB 9200; 5) intellectual property risks; 6) reimbursement risk; 7) business development risks; and 8) financing risk.
CompanyDruge+, nuke naïvee-, nuke experiencedArrowheadARC-5201.5 log S drop after single doseMinimal, about 0ARC-521Should have similar efficacy as ARC-520(~3 log drop in chimps after 3 doses)Clinical data in early 2017ArbutusARB-1476Data early 20170.3-0.4 log S drop after single dose0.7 log S drop after 3 doses

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