In a deal that could bring the company as much as $1.04 billion, Arrowhead Pharmaceuticals Inc. will collaborate with Takeda Pharmaceutical Co. Ltd. to co-develop and co-commercialize an investigational RNAi-based liver disease treatment.

Arrowhead’s candidate, ARO-AAT, is designed to reduce mutant alpha-1 antitrypsin protein production, which causes the disease to progress.

Arrowhead will receive a $300 million up-front payment on closing in addition to development, regulatory and commercial milestones that could total $740 million.

The companies will co-develop and co-commercialize the therapy in the U.S. If ARO-AAT is approved, the two companies agreed to equally split the profits. Takeda is to receive an exclusive license to commercialize ARO-AAT outside the U.S., with Arrowhead eligible to receive tiered royalties of 20% to 25% on net sales.

Chris Anzalone, president and CEO, Arrowhead

Christopher Anzalone, Arrowhead’s president and CEO, told investors in an Oct. 8 morning call that the time was right to partner on the drug so the company could decrease its reliance on the capital market to fund its pipeline.

“It is clearly time to move forward with commercial planning,” he said, adding that while finding the right partner was something the company took seriously, it also was prepared to go it alone.

“If we didn't find the right partner, if we didn't find the right economics, we were happy to continue to develop the program and potentially commercialize it ourselves,” Anzalone said. “But Takeda was clearly – is clearly the right partner here with their experience in enzyme replacement, with their experience in GI; it just made great sense. And not only from an expertise standpoint, but also from a cost standpoint. They've got existing sales channels that will work well with ARO-AAT. And so this was a no-brainer for us.”

SVB Leerink analyst Mani Foroohar called the Takeda partnership a “prudent move” for Arrowhead.

“While bulls may grumble that the profit split and royalty agreement limit potential upside in a blue-sky scenario, we see the terms of the deal as attractive, and applaud management’s decision to lock in a floor value for ARO-AAT (the single largest value driver in our model), share some development costs, and mitigate risk ahead of competitor data from VRTX, DRNA and others,” Foroohar wrote.

The analyst is referring to Vertex Pharmaceutical Inc.’s phase II study of VX-814, a small molecule that corrects misfolding of AAT for treating alpha-1 antitrypsin deficiency (AATD) and Dicerna Pharmaceuticals Inc.’s DCR-A1AT, an RNAi targeting SERPINA1 for treating AATD that received the FDA’s orphan drug designation in March.

Piper Sandler analysts labeled the deal a “strong” one and called Arrowhead’s data “impressive.”

The deal’s fulcrum is the readout from Arrowhead’s open-label phase II trial. The study of ARO-AAT for treating the rare genetic liver disease associated with AATD revealed evidence of a meaningful pharmacodynamic effect that led to relevant biomarker improvements. Among the data included are an up to 97% reduction in intrahepatic mutant AAT protein Z-AAT polymer; an up to 95% reduction in intrahepatic total Z-AAT burden; an up to 66% and 58% reduction, respectively, in circulating alanine aminotransferase and gamma-glutamyl transferase, both serum biomarkers of liver injury levels; and an up to 26% improvement in transient elastography Fibroscan values, with three of the cohort’s four patients exhibiting greater than 20% reductions.

The data were culled from 24 weeks of treatment in the first of a planned three cohorts. The cohort’s four patients received 200 mg of ARO-AAT injected subcutaneously at weeks one, four and 16. The multidose phase II study of about 16 adults with AATD-associated liver disease and baseline liver fibrosis began in December 2019 and has an estimated study completion date of November 2021. The primary outcome measure is the change from baseline over time in a histological liver disease activity scale.

Anzalone said the Pasadena, Calif.-based company is also talking with the FDA to find ways for streamlining and accelerating ARO-AAT’s remaining clinical studies.

Arrowhead stock (NASDAQ:ARWR) closed Oct. 8 at $48.01, down 9 cents.

Arrowhead is no stranger to partnering. It currently has an RNAi therapy targeting hepatitis B virus infection in a phase IIb study along with Janssen Pharmaceuticals Inc. The multicenter, double-blind, active-controlled, randomized study is investigating the efficacy and safety of different combination regimens, including JNJ-3989 (formerly ARO-HBV) and/or JNJ-6379 for treating chronic hepatitis B virus infection. Arrowhead earned a $25 million milestone payment from Janssen when the study began in August 2019.

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