It was the summer of 2007 when Chris Anzalone, Ph.D., got a call from Arrowhead Research Company. At the time, Anzalone was working as CEO of the Bennet Group, a private equity firm in Washington, D.C., focused on creating and building new nanobiotechnology companies from university-generated science. “We talked about the deal, and then they threw me a curveball,” says Anzalone. Turns out, the company was looking for a new CEO and wanted to know if he was interested. He wasn’t. About a month or so later, they called to see if he had changed his mind. He hadn’t. But as he was going to soon be in the area (i.e., Los Angeles), Anzalone told them he’d be happy to meet. “A couple of things stood out,” he recalls. “Namely, the company was broken, and it had a broken business model.” What Arrowhead did have was a majority-owned subsidiary, Calando Pharmaceuticals, an early pioneer in RNA interference (RNAi). Having a Ph.D. in biology, Anzalone recognized the therapeutic potential of this modality. So, he told them, were he to take the CEO job, he’d want to sell off all the assets but hold onto Calando and build a proper biotech company around it. They agreed, and he joined Arrowhead as its CEO in December 2007.
The company was public at the time, and Anzalone felt he needed about a year of a healthy stock market to make the necessary changes (i.e., divest what needed to be divested and raise a bunch of money). “Turns out, I only had a quarter, because when March 2008 rolled around, all hell broke loose, and capital-intensive companies with confusing business models were right in the crosshairs.” But surviving the Great Recession, as you will soon learn, was just one small part of the adversity puzzle faced by Anzalone in piecing Arrowhead back together.
THE REBIRTH OFARROWHEAD
It took longer than a year to “rationalize the business,” and during that time, Anzalone admits, he was rarely home. “I was always running around trying to make sure we stayed capitalized while we made all these changes,” recalls the CEO. But in 2011, he saw an opportunity that could truly catalyze Arrowhead’s rebirth.
Roche was looking to get out of the business Arrowhead had opted into, and the Big Pharma had around $1 billion worth of RNAi assets it was looking to unload. “We were not the only bidder, and we were probably the smallest and poorest,” he relates. How poor, you might wonder? Consider this. When Anzalone first spoke with Arrowhead in 2007, the company’s stock (NASDAQ: ARWR) was trading over $70/ share. By 2011, Arrowhead’s stock price had dipped such that its market cap was less than $50 million. “We still had the Calando RNAi technology but realized that what Roche had to offer was just better.” So he went about going to get it.
When negotiating, in any sphere, Anzalone says it pays to try to understand what the counterpart wants most. “Those who make it easier to understand what they want provide for a better relationship, because then we can get to a go/no-go decision more quickly.” And while money is always important to a deal, in the grand scheme of things, Anzalone understood that whatever money that came in through this possible deal, it would hardly make a dent in Roche’s balance sheet. “So we tried to play toward other considerations.” For example, Arrowhead didn’t want to acquire just the RNAi technology; it had interest in acquiring one of Roche’s sites, based in Madison, WI. “Other bidders may have only wanted the IP, but we actually wanted the people who invented the stuff, as they were the ones who made it valuable.” This all being said, Roche did have a certain amount of money they needed for the deal to happen, and Anzalone spent months trying to find it. In fact, he was in London trying to raise money on the day the Roche deal was supposed to close. “I had to make a difficult phone call to Roche to tell them we didn’t have the money, so we couldn’t do the deal,” he recalls.
As many would do after just losing “the deal” that would be transformational, Anzalone went and found a pub to drown his sorrows. His plan was “to have one to seven pints of beer” and then type up an email to everyone at Arrowhead about what had transpired and thank them all for doing an amazing job getting the company to the brink of this transaction. “We were punching above our weight. We had no business being at the table at the very end.” Indeed, the fact that the company had come so close was quite a testament to the quality, committed, and smart people on staff at Arrowhead. And as he was typing, he realized just how close the company had come and how impressive that was. “I thought, F*@k that. I can’t let this deal die!” So he put his head down and was able to find a way to restructure the deal that made sense to Roche. A few weeks later, the deal went through. Here’s what the Roche deal entailed:
Roche Asset & IP Acquired by Arrowhead:
Roche Madison Inc. (formerly Mirus Bio Corp.), providing an advanced proprietary RNAi delivery platform known as Dynamic PolyCunjugates (DPCs)
License from Tekmira Pharmaceuticals Corp. for proprietary SNALP RNAi delivery
Proprietary Liposomal Nanoparticle (LNP) RNAi delivery system developed by Roche
License from Alnylam providing access to Alnylam’s RNAi IP and canonical siRNA structures
License from City of Hope providing access to dicer substrate siRNA structures
License from MDRNA (now Marina Biotech) providing access to meroduplex siRNA structures
A team of over 40 leading scientists in the RNAi field and state-of-the-art facilities and infrastructure in Madison, WI
Under the terms of the agreement, Roche transferred all of its existing RNAi operations and research facilities in Madison, WI — including employees, equipment, related technology licenses, and intellectual property covering current and planned development programs — to Arrowhead. In exchange, Roche obtained a minority stake in Arrowhead and rights to negotiate for certain future products, milestone payments, and royalties on sales.
Four years later, Arrowhead executed a similar deal with Novartis, acquiring the company’s entire RNAi R&D portfolio and associated assets for $10 million cash and $25 million in Arrowhead stock. At the time, this positioned Novartis as Arrowhead’s second largest stockholder. And just when everything seems to be going right, doesn’t life have a way of throwing a little adversity your way? As Anzalone will attest, this is when you learn a lot about yourself — and your people.
BACK TO THE R&D DRAWING BOARD
It was November 2016 when the U.S. FDA placed a hold on a Phase 2 clinical trial of Arrowhead’s lead drug candidate (ARC-520), aimed at treating chronic hepatitis B virus (HBV). The hold was prompted by deaths of monkeys in a separate study that involved EX1, a drug delivery vehicle developed by Arrowhead that is administered intravenously and targets the liver. As EX1 was being used as a delivery vehicle for other Arrowhead trial drugs, all EX1-related trials were put on hold. “We had to shutter our three clinical programs,” he admits. This was a big blow, as just a few months earlier, the company had officially changed its name from Arrowhead Research Company to Arrowhead Pharmaceuticals because its priorities were beginning to shift toward commercial aspirations. Investors also saw the news as a major setback, with shares plunging 31 percent following the company’s announcement of the clinical hold.
It seemed Arrowhead faced a rather difficult decision: It could fight the hold, which would entail redoing toxicity studies and trying to understand exactly where the “tox” came from. Then, prove to the FDA and other regulators that what was seen in monkeys would not be seen in humans. “It’s a high hurdle, but we could have tried to get over it,” he asserts. That was actually probably the easier route since Arrowhead had treated a lot of patients and healthy volunteers without any safety issues while getting good gene knockdown. “I do think the toxicity issue was species-specific, and it was certainly dose-dependent, because what we saw in the monkeys was at a higher dose than we would ever give a human.” Anzalone believed “staying the course” would have taken at least a year (if they were lucky), and if unable to satisfy FDA concerns to remove the hold, that was then a year lost.
"If we really cared about building long-term value and eventually making medicines that were going to help patients, then the decision was clear."
However, Anzalone believed they had better science waiting in the wings. “If we really cared about building long-term value and eventually making medicines that were going to help patients, then the decision was clear,” he says. Arrowhead had this follow-on next generation platform it had been developing for some time. “EX1 was good for IV, but it wasn’t going to work for subcutaneous [SubQ] administration,” he notes. And as there were a number of diseases that were going to require SubQ, the new platform was potentially more valuable, though much earlier in clinic. “The science was telling us that it would be more valuable to invest in the newer platform instead of continuing to develop the other, so that’s what we decided to do.”
The markets hated the idea of Arrowhead going back to the R&D drawing board, and the stock fell to new lows, reaching $1.24/share in December 2016. A little over a month later came the filing of a securities class action suit. The immediate fallout was devastating — and revealing. Arrowhead ended up laying off about one-third of the company, as it needed to reduce expenses and refocus on the newer technology. “When we announced the layoffs, we made the decision rather quickly.” He recalls this being painful. The company had informed those being let go, and though they needed them for a few more months, he instructed them on the day of the announcement to go home and be with their families. Afterward, he went back to his office to do some work. A little while later, he was walking through the building and saw one of the conference rooms full of people he had just laid off. Turns out, they were there because there was still work to be done, and they were committed to the Arrowhead mission. “It was so heartening to see that we had built such a powerful culture,” he says.
There is a bit of a silver lining to this story, as Anzalone notes Arrowhead was able to hire back roughly 90 percent of the people once it got back on its feet. “This was a real testament to those that stayed, and their being aligned on the mission,” the CEO adds. “We told the markets they weren’t going to hear from us for about a year because we needed to focus and work as quickly as we could. Because if this ended up bleeding into two years, I was sure the company would die.”
By the end of 2017, the company’s stock was beginning to recover (i.e., avg. 2017 price = $2.42/share). It closed 2018 at $12.42/share, and by 2020, was back in the $60s. And though Arrowhead has encountered a few bumps to start the year, it seems the company is back on the path toward fulfilling its commercial aspirations — which is great for patients.
People Or Capital? Which Is More Important To Innovation?
Chris Anzalone, Ph.D., CEO of Arrowhead Pharmaceuticals, says his appreciation for the staff who work at the company and the important role they play in innovation came from his time as a scientist. “I was an NIH-funded postdoctoral fellow before getting into private equity,” he recalls. “And as I entered into the world of finance, I realized that these people tend to be more disconnected.” From his perspective, those in finance don’t value those who do the innovation; it’s only capital and IP that matters. Scientists think the opposite. “They’re both wrong,” Anzalone attests. “There are no shortcuts in biopharma.” Companies that are able to follow the science and play the long game have a chance to be successful. And still, most are going to fail, because science, after all, is hard. “If you can follow the science wherever it leads and make that part of your company’s DNA, you have the best shot of building something of value, and that requires people and capital,” he contends.
What Makes For A Good Board
When Chris Anzalone took over as CEO of Arrowhead Research Company in 2007, he realized the company wasn’t properly tooled leadership-wise for being a biotech. “This we had to build from scratch,” he shares. To do this, he sought input from the board. “I don’t know that a board member has to have deep expertise in the field where your company plays to be a quality board member,” he continues. “They just have to be willing to ask lots of questions.” Anzalone notes that the Arrowhead board he inherited did not have people with a lot of biotech experience. And while over time the company has brought in some people with more biotech experience, he hopes to always have some people who are not necessarily from biopharma. “Because they ask dumb questions, and those dumb questions are actually great questions,” he asserts. “We do X because we’ve always done X, and it’s the outsider that asks, ‘Why do you do X?’” According to Anzalone, this helps when trying to find novel solutions. His advice regarding boards? Find high-quality people who ask good questions who are committed to the mission.