Takeda Broadens Its Rare Disease Portfolio By Partnering With Arrowhead (NYSE:TAK)

Takeda (TAK) has identified both rare diseases and gastrointestinal diseases (or GI) as key areas of interest and R&D focus. On Thursday morning, Takeda put even more money on the table, signing a partnership agreement with Arrowhead Pharmaceuticals (ARWR) for its ARO-AAT RNA interference (or RNAi) drug for alpha-1 antitrypsin-associated liver disease (or AATLD).

With Arrowhead having a multiyear head start, and recently producing very encouraging data from a small Phase II cohort, this is a promising deal for Takeda. Given the mechanisms of action, RNAi drugs should have relatively lower late-stage failure rates, and the market opportunity in AATLD could be in the several billions of dollars. While Takeda’s size does limit the materiality of this deal to a point, an upfront investment of $300M for the chance at a multibillion-dollar drug is a deal worth doing, and for Arrowhead this yet another Big Pharma partnership to help validate a striking clinical comeback with a new delivery technology.

The Deal

Takeda and Arrowhead announced a partnership on Thursday morning for Arrowhead’s Phase II/III drug ARO-AAT – an RNAi drug that targets the production of mutant alpha-1 antitrypsin in the liver and essentially halts (if not reverses) the progression of AATLD.

The partnership is designed as a co-development and co-commercialization partnership. Although the announcement didn’t provide specific detail here, given that the Phase II/III SEQUOIA study is already underway, I don’t expect that Takeda will be taking over the R&D/regulatory part of the process. If ARO-AAT is approved, the companies will co-promote the drug in the U.S., while Takeda will enjoy an exclusive license to market the drug outside the U.S., in exchange for which Arrowhead will get a 20% to 25% royalty.

Arrowhead is also receiving $300M upfront, and a commitment for up to $740M for various development, regulatory, and commercialization milestones (the typical “bio-bucks” portion of such announcements).

This marks the third major Big Pharma deal for Arrowhead, with the company having struck earlier deals with Amgen (AMGN) and Johnson & Johnson (JNJ) for other compounds.

What Takeda May Be Getting

Co-promotion deals are becoming more and more common, and I believe this was a good deal for both parties. Arrowhead got some significant upfront cash and bio-bucks commitments, not to mention keeping the rights to a meaningful share of future profits, while Takeda gets a very promising compound (meaningfully de-risked, in my opinion) that fits with its foci on both rare diseases and GI diseases (if you include liver-centered ailments under “GI”).

The Disease

The disease that ARO-AAT addresses (AATLD) is technically a rare disease, but by the standards of rare diseases, it’s actually surprisingly common. About 1 in 3,500 people in North America and 1 in 2,500 in Europe are thought to have the disease, while it is very uncommon in Asian populations. It is not commonly screened for, and often isn’t diagnosed until a patient has already suffered severe liver damage. As a genetic disease it is present from birth and the eventual availability of a drug could lead to more robust screening protocols.

By targeting that mutant protein, ARO-AAT should be able to halt the progression of AATLD and allow the liver to heal over time. Normally AAT is a protein that protects the lungs, but for people with AATLD, the AAT protein is misshapen and accumulates in the liver, leading to impaired liver function, cirrhosis, and death in some cases (about 15% or so). There is no meaningful treatment for AATLD other than liver transplant.

The Data

Arrowhead recently presented impressive data from a small cohort from its Phase II open-label AROAAT2002 study. In four patients, the drug produced a 93% reduction in serum Z-AAT at six months, and a 95% reduction in total hepatic Z-AAT. While a high level of Z-AAT clearance was hoped for later on, the speed with which ARO-AAT seems to work is very encouraging. Patients also showed a reduction in ALT, a liver enzyme used as a proxy for liver damage, with a maximum reduction of 66%, as well as GGT (up to 58%), and the drug also seems to reduce liver stiffness.

On the basis of this early look, Arrowhead will be approaching the FDA about potential modifications to its Phase II/III SEQUOIA study (already underway since August) that would accelerate the time to potential filing and approval, including a potential change in trial length and/or primary endpoint (to polymer reduction from histology).

The Opportunity

I believe that a successful AATLD drug could have an addressable market of over 100,000 patients per year. While not all AATLD patients will be candidates (there are milder forms of the disease), the treatment isn’t a cure and must be maintained to maintain the benefits.

Pricing is harder for me to estimate. While Alnylam (ALNY) has secured robust pricing for its two approved liver-based rare disease drugs (including over $400,000 for Givlaari), the prevalence of AATLD may make such a high price point harder to achieve, particularly with two-thirds of the potential patient pool coming from Europe. Even if the blended price is “only” around $115,000, it would still support a peak revenue of over $5 billion, and possibly closer to $6 billion.

As far as competition goes, Vertex (VRTX) is developing VX-814, while Dicerna (DRNA) and Alnylam have partnered on a combined rival RNAi-based portfolio approach (ALN-AAT02 and DCR-A1AT), with Dicerna leading the development. As a “protein corrector”, I’ll be surprised if VX-814 is sufficiently effective in severe AATLD cases. While either the Dicerna (DCR-A1AT) or Alnylam (ALN-AAT02) drug may prove effective enough to be a viable competitive alternative, Arrowhead/Takeda will have a meaningful head start with ARO-AAT, though the challenge/issue of patient screening/identification may mitigate some of that advantage.

The Bottom Line

As an investor in Alnylam, more Big Pharma interest in RNAi as a therapeutic class is always welcome to me. While a solid deal for Arrowhead, I think this was already expected to some extent; still, having a powerful marketing partner will be invaluable for what could be the company’s first drug to reach the market. For Takeda, this is what I would consider a prudent gamble – a $300M upfront payment for a meaningful commercial stake in a drug that could generate multiple billions of dollars in peak revenue and that gives the company a potential new avenue in its rare disease efforts should they decide to pursue a deeper partnership down the line.

Disclosure: I am/we are long ALNY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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